Governments and Growth: Size Matters Country Size, Government Size, and Economic Growth

Big governments lead to lower levels of short-term economic growth. But is the size of this negative effect the same in different nations? I argue that big government matters less for growth in small countries than it does in large ones, because large countries are more dependent on domestic sources of production and consumption for their economic growth than are small countries. I find support for this argument in a panel study of 23 industrialized nations. I also find support for a subsidiary hypothesis linking big government in the US and/or Japan with low levels of growth across the industrialized world, but especially among small open economies.