The effect of the size and the mix of public spending on growth and inequality

[Chris]

New paper from the OECD: THE EFFECT OF THE SIZE AND THE MIX OF PUBLIC SPENDING ON GROWTH AND INEQUALITY (http://www.oecd.org/eco/public-finance/WKP%201344.pdf) (.pdf)


...On the size and effectiveness of government

 Larger governments are associated with lower long-term growth. Larger governments also slowdown the catch-up to the productivity frontier.

 The adverse growth effect of large governments can be offset, if countries have well-functioning governments (e.g. the Nordic countries). A high degree of spending decentralisation also mitigates the adverse growth effect of large governments.

 In the countries with the most effective governments, the large size of the government promotes equity with no adverse effect on growth. This likely reflects that larger governments tend to redistribute more, and that better functioning governments tend to better target transfer programmes to disadvantaged groups.

 In countries with less effective governments, improving government effectiveness can both increase growth and reduce inequality. In these countries, reducing the size of government increases income of all. Nonetheless, it benefits less those with lower income as smaller governments tend to redistribute less.

...

[Newpublius]

Just a minor point here with respect to the much vaunted 'Nordic countries' -- first off when comparing the US to what it should be compared to -- ie the EU, one can clearly see the socialist torpor gradually replacing the dynamism of capitalist production. Of course the modern day socialist apologists, the Democrats, now cherry pick the 'Nordic countries' as being the desirable model. But even here, let's look at Norway, where the country is so well endowed with oil that it matters not much what political economy they employ. Norway can't be copied. Then, we have Sweden where the countries welfare was so extensive that Sweden itself actually had to pull back its horns and acknowledge it didn't work, the Swedes still do not have American incomes. Finland of course is just outright no different from the other social market economies, now high unemployment and similar income to Sweden. Of course that leaves cheery little Denmark (note how Sanders picked Denmark). And Denmark actually IS doing well. Of course, I could just as well say that Denmark should copy NJ or at least 10 other jurisdictions in the US that are doing much better than Denmark. Or perhaps maybe the EU should copy NJ too? (sarcasm in case not detected).....

The problem of course is with the mode of allocation itself. Indeed, less corrupt government IS better, but even government that isn't corrupt is systemically inefficient. The socialist calculation problemcannot be solved.