At the risk of understatement, I’m not a fan of the Organization for Economic Cooperation and Development. Perhaps reflecting the mindset of the European governments that dominate its membership, the Paris-based international bureaucracy has morphed into a cheerleader for statist policies.
What is particularly irksome to me is the way the OECD often uses dishonest methodology to advance the cause of big government:
- Deceptively manipulating data to make preposterous claims that differing income levels somehow dampen economic growth.
- Falsely asserting that there is more poverty in the United States than in poorer nations such as Greece, Portugal, Turkey, and Hungary.
- Cherry picking years to create a false narrative about trends in personal income tax revenue and corporate income tax revenue.
- Peddling dishonest gender wage data—numbers so misleading that they’ve been disavowed by a member of Obama’s Council of Economic Advisers.
But my disdain for the leftist political appointees who run the OECD doesn’t prevent me from acknowledging that the professional economists who work for the institution occasionally generate good statistics and analysis.
For instance, I’ve cited two examples (here and here) of OECD research showing that spending caps are the only effective fiscal rule. And I praised another OECD study that admitted the beneficial impact of tax competition. I even listed several good examples of OECD research on tax policy as part of a column that ripped the bureaucracy for some very shoddy work in favor of Obama’s redistribution agenda.
And now we have some more good research to add to that limited list. A new working paper by two economists at the OECD contains some remarkable findings about the negative impact of government spending on economic performance. If you’re pressed for time, here’s the key takeaway from their research:
Governments in the OECD spend on average about 40% of GDP on the provision of public goods, services and transfers. The sheer size of the public sector has prompted a large amount of research on the link between the size of government and economic growth. …This paper investigates empirically the effect of the size and the composition of public spending on long-term growth… The main findings that emerge from the analysis are… Larger governments are associated with lower long-term growth. Larger governments also slowdown the catch-up to the productivity frontier.
For those who want more information, the working paper is filled with useful information and analysis.