Daniel Hannan: What is the ideal size of the state?

The British government is spending 50 per cent of GDP, but taking just 40 per cent in taxes. The coalition’s aim is to close that gap over the next five years (still leaving a massive accumulated debt, by the way), partly by raising taxes and partly by cutting spending. The hope is that economic growth will keep the eventual figure closer to 40 per cent than to 50. What, though, is the optimum share?

The above video hazards an answer. The Rahn Curve is to state spending what the Laffer Curve is to taxation. Drawing on a mass of published data and economic models, it suggests that the ideal size of the state is between 15 and 25 per cent of GDP. Less than this and property rights start to look insecure; more and competitiveness suffers.

So, how do we go about getting there? Or even half way there? Any suggestions are welcome: the thread is open.

It would depend on the country, I think.

As the graph suggests, poorer countries could stand to have the state take in more of the GDP, as this would lead to faster economic growth rates. Many developing countries need to spend more on infrastructure, education, and health systems. If they had better infrastructure as well as a more educated and healthy workforce, they would be more productive and attract more local and foreign investment.

Richer states may stand to have lower tax rates. All developed countries have at least adequate infrastructure in most areas, and so do not need to spend much more on that. Educational issues are more a problem of methods than of money. Same for the health system.

Geographically larger countries may have to have a higher tax intake than smaller ones because bigger countries require more infrastructure. More roads, more pipelines, more railway tracks, etc. And infrastructure decays or becomes outdated over time. For some infrastructure, decay rate and design--and cost--would depend on the climate as well as local forms of natural disaster like earthquakes, tornadoes, hurricanes, volcanoes. Some countries would have to spend more on nature-proofing than others.

Then there's the issue of whether what is run by the government in many countries should be instead the responsibility of the private sector. If the private sector were entrusted with more of a country's infrastructure, education, and health, then obviously less tax money is needed. However there are reasons why the private sector does not run all of a country's basic services, and I agree with many of those reasons.

P.S. I know a lot of what I've written above does not conform to the typical conservative view. Still, even the comment above mine acknowledges some need for taxes.

they would be more productive and attract more local and foreign investment.

I'm not sure investing is big government countries is wise. In the end, its all about a bunch of poor people who think they can borrow money and become rich people... Government spending only works when it is a SMALL part of an economy. Build the roads from surplus... not funding Leftist teachers with debt...

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