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Policy: Budgets & Deficits

Canada shows you can cut government spending

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Beltway Confidential,Opinion,Michael Barone,Canada,Big Government,Economy,Budgets and Deficits,Spending

What's the proper size of government? Here's an article from American Enterprise Institute's The American website citing a study by Canadian economist Livio De Matteo of the free-market Fraser Institute. The bottom line: The optimal government size of maximizing economic growth is 26 percent of gross domestic product. Below that, you miss out on useful services; above that, you start to plunder the private sector economy. The bad news: The current share in the United States, counting state and local as well as federal spending, is 40 percent. The good news: You can ratchet back spending quite sharply, as Canada did in the mid-1990s.

For more on how Canada did it, I recommend reviewing the video or transcript of a panel event co-sponsored by AEI and the Macdonald-Laurier Institute of Canada back in September 2012. It wasn't at all a partisan picture. The lead speaker was Paul Martin of the Liberal party, who as finance minister presided over the spending cuts and who later served as prime minister. Also speaking were the Conservative Party's Stockwell Day and the New Democratic Party's Janice MacKinnon, who as leaders of the Alberta and Saskatchewan provincial governments in the mid-1990s also managed the cuts. Message: They were painful, some people got hurt; MacKinnon said her province shut down dozens of hospitals in a single day. But they worked. They have been followed by low-inflation economic growth. Canada's government share of gross domestic product fell downward toward that of the United States. Unhappily, both rose after the 2007-09 recession, but both are falling again. Now if we can just get them converging at a lower number ...

Michael Barone is a resident fellow of the American Enterprise Institute.

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