This paper examines the relationship between governmentsize and economic growth of 21 industrialized countries. Governmentsize is measured by government final consumption expendituresand transfer payments. The relationship between government consumptionis expected to increase GDP growth for developing countries, andreduce it for industrialized countries. Government consumption can contributeto increased economic growth. However, government consumptionis likely to expand beyond an efficient level in industrializedcountries. In contrast, transfer payments, and social welfare programsare likely to reduce economic growth for most countries. These programsreduce work incentives and encourage tax avoidance activities.Work disincentives and tax avoidance reduce economic growth. Theseexpected relationships are consistent with economic performance andgovernment size for the countries considered here. Inefficiency andexcessive government growth are checked by voter feedback as tax burdensexceed the associated benefits. Unfortunately, government programcosts and benefits are asymmetrically distributed. The resultingtendency is to expand government programs, particularly programs thatbenefit a majority of voters at the expense of a minority. This tendencybecomes even more acute as the tax system becomes more progressive (i.e., tax burdens become concentrated. Reductions in government sizeare more likely with stagnant or declining economic growth, and in governmentprograms whose costs are widely shared, compared to programswith widely shared benefits and narrowly shared costs.
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