Thursday, July 29, 2010

What's More Valuable, Small Government or Good Government?

That's the topic of a very interesting and evidence-filled guest post at The Baseline Scenario blog (here). The argument is often, using the Heritage Foundation's Freedom Index, that smaller government correlates with (or even causes) economic welfare. The evidence provided in the post suggests, however, that it is the quality of government, far more than the size of government, that matters for economic performance. Here's the conclusion:
The Heritage Freedom Index is really a composite of measures that get at two different things: Good Government, and Less Government. Overall, the Good Government factors tend to dominate, and drive a lot of the correlation with good economic and quality of life outcomes. When one splits out the factors, the case for Less/Weaker Government weakens substantially, and the case for Clean/Non-Corrupt/Efficient government strengthens considerably.

This does not support many of the conclusions that are often drawn using the overall Heritage Index.
Hat tip: Marginal Revolution 

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