Another Indication Government Can Shrink

Michael Barone reports the findings of Canadian economist Livio De Matteo, who says that the optimal size of government — in terms of economic growth — is 26% of GDP.  Having not investigated how De Matteo gets to that number, I can’t say whether it’s unreasonably high or even too low, but out of curiosity: How do we stack up in Rhode Island?

Given available data, 2011 is a good year to check, and it looks like the following:

  • Rhode Islanders’ portion of federal spending: $12.75 billion
  • State general revenue spending: $2.96 billion
  • State restricted receipt spending: $0.16 billion
  • Total municipal tax levy: $2.25 billion

That list misses some stuff, such as fire district taxes and municipal revenue not included in the levy.  (I went with levy rather than budget because much of the additional spending would double-count federal dollars.)

Duly noting the minor tweaks, that list totals to $18.12 billion, or 37% of the state’s $49.42 billion GDP that year.  Government is 41% to big in Rhode Island.  Put differently, optimal economic growth would require the three tiers of government to cut their Rhode Island–related budgets by $5.27 billion.

That’s a big number that nobody would expect to realize, but it kind of puts in context the few hundred million dollars that the RI Center for Freedom & Prosperity projects to be the cost of eliminating the sales tax, doesn’t it?

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