The findings of this paper show a strong and persistent negative relationship between government expenditures and growth of GDP, both for the developed economies of the OECD and for a larger set of 60 nations around the world. After several decades of declining growth rates, the conventional wisdom is that high-income developed economies can no longer achieve and sustain real growth rates of 3.5 percent and higher. The evidence presented in this paper provides another view. More rapid growth is possible, but the higher potential growth can only be achieved if we are willing to reduce the relative size of government.
Prosperity requires that people abandon old ways of doing things, old industries and bet on new ways and new industries. To achieve that transition, capital must move from yesterday’s industries to those of the future. The move is a bet. People experiment. Experiments must be financed. Financing requires mobility of capital: people having the incentives to switch money from one enterprise to another. If this switch is taxed – and capital gains taxes are a tax on just such a switch – the incentives to shift resources out of the old and toward a better match diminish.
Governments in Canada draw heavily on the productive resources of the economy, more so actually than at any time in the history of the country except during World War II. The average Canadian family pays out more than 46% of its income in taxes, as opposed to 33% in 1961. Its total tax bill shot up more than 1,286% since 1961 and it now accounts for more of the average Canadian budget than shelter, food, and clothing combined. Of the four countries with which we trade most, it is in Canada that the overall burden of taxation has risen the most over the last three decades. Income taxes for their part have climbed at twice their rate of increase in the U.S.
Étatisme et déclin du Québec (Statism and the Decline of Quebec) is an incisive analysis of the Quiet Revolution, the pivot around which the accepted interpretation of Quebec history has gravitated. Before that came a period called la grande noirceur (the great darkness), which gave way to a liberating modernity and triumphal progress. Observation of the facts leads us to paint a very different picture, however. If the Quiet Revolution indicated a turning-point in our economic and social evolution, it was a turn for the worse that marked the beginning of an ever wider gap between Quebec’s growth rate and the rates for Ontario, Canada and the United States.