Taxation and Spending

Government's size has grown over the past century in the modern developed economy from around 10 per cent of GDP to comprise over 30 per cent and in some cases 50 per cent.  The growth is fundamentally due to transfer payments with spending allocated to health education and welfare. 

 

Taxation reduces the incentives people have to work and save (for investment) while government spending decisions are rarely as well directed or as carefully chosen as the decisions people would make with their own money.  Increased government size has co-existed with an unparalleled (at least until the 2008 global meltdown) income growth.  However those countries that have fared best have overwhelmingly been those that have managed to keep the size of government low.