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Parliament Hill in Ottawa. If the Conservatives want to demonstrate that they have a small-government agenda, cutting spending is not a particularly informative signal:

Sean Kilpatrick

A government that is 'small' is generally understood to being one that is minimally intrusive, while 'big' governments are highly interventionist. The projections in the last federal budget – Table 5.9 here – show a decline in federal spending as a share of GDP, and this has been cited by some commentators as being part of a Conservative agenda for a smaller government.



But it's a mistake to conclude that a government that spends less will intervene less.



Consider, for example, BHP-Billiton's takeover bid for Potash Corp. A 'small' government wouldn't have seen fit to intervene. But the Conservative government blocked the deal -- and that decision didn't cost the federal treasury anything. Nor would it have cost anything to block the LSE bid for TMX Group if the file had progressed that far.

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Another good illustration is the climate change file. The least intrusive, most efficient way of reducing greenhouse gas emissions is to price them properly, in the form of a carbon tax. The most intrusive, least efficient way is the one the Conservatives have chosen: regulation.



The reverse is also possible: a minimally-intrusive government can still have high levels of spending. A policy regime that combines a light regulatory hand with a tax mix that is heavy on value-added taxes such as the GST/HST will still produce strong economic growth. And if those revenues are used to finance cash transfers to low-income households instead of a bureaucracy (or subsidies to companies that enjoy the favour of the government), then a government with a large budget won't necessarily be one that is highly interventionist.



If the Conservatives want to demonstrate that they have a small-government agenda, cutting spending is not a particularly informative signal: interventionist governments don't need big budgets.



Stephen Gordon's recent posts and Twitterfeed can be viewed here.



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