How big are the governments in the successful nations? There are some rules of thumbs. For example when the government deficits surpass 3 percent of GDP, it generally means that the government is too big. Another general rule is that successful governments tend to be small, providing enough space for free enterprise to work and flourish. According to “10 rules of successful nations” the governments should have right-sized governments, not too big nor too small for their specific growth phase. Some governments are too lean, that increasing taxes and government spending is a step forward for them.
In the league of developed countries, France has the biggest government by a large margin. Over 56 percent of the country’s GDP is spent by the French government. This is much more than the average rate in developed countries. Even Georges Calemenceau, the former president of France, has described it as “A very fertile country, you plant bureaucrats and taxes grow!” For France, cutting down the taxes is a step forward. However, cutting taxes is not an easy practice as there are many beneficiaries for the current government spending, and they would definitely lobby against tax cuts.
On the other side of the spectrum, there are governments that are weak that they cannot efficiently provide basic public goods that are sought to be provided by the governments. These public goods include basic transportation infrastructure and mechanisms to contain monopolies and even crimes. For example a country like Pakistan with 180 million population has only four million registered taxpayers and fewer than one million people actually file taxes annually. For these countries raising taxes is a step forward. These are countries that usually more than 30 percent of the economy is in the black market. People avoid bank accounts to escape taxes. They cannot save money and the employers also get poor quality and unskilled workers.
Many South Asian countries who experienced fast growth in the last decades still have relatively small governments, of course their governments are big enough to provide needed public goods, but not so big to impede free enterprise. Even today, a typical East Asian government spends only 20 percent of the country’s gross domestic product. Taiwan and South Korea started an inclusive welfare system just after the 1998 crisis and by then their per capita income was more than $15,000. Today the South Korean welfare system spends only 7 percent of the GDP, much lower than the developed countries.
Source: “10 rules of successful nations”
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