Since the late 1970s it has largely been the consensus that “big government” is detrimental to growth. This manifested after the financial crisis when countries, including previously fiscally-comfortable countries like Germany and the UK, adopted austerity programs, ostensibly to spur growth by cutting government expenditure.
But our research shows the story is not so simple. We found that studies tend to reflect selection bias. Findings that indicate a negative association between government size and growth are more likely to be published than those that show either a positive or no association.
Our research also found that the affect of the size of government is different between developed and developing countries and that there is a lot we don’t know about the optimal size of government, and whether some parts of government should be smaller than others. ….