Tobias Streuman wrote a short article in the WOZ about the Swiss economy. The reason is *economiesuisse*, the largest umbrella organization covering the Swiss economy. They wrote started an ad campaign where they offer their answer to a long-standing problem: For thirty years now the economy in Switzerland is growing at a slower rate than in the neighbouring countries. Economiesuisse’s answer is **government spending**.
They claim that government spending practically “doubled” since 1988, from CH 27 billion to 51 billion. And therefore they want the government to cut costs. Tobias Streuman now asks, why government spending is bad in the first place. He says that you usually get two ansers:
1. scientific studies prove it
2. Reagan cut taxes at the end of the 80s and a few years later the boom started
But it seems that this is not true at all.
1. The numbers for Switzerland don’t take inflation into account. Taking it into account, the rise amounts to only 40%.
2. Government spending in Denmark, Finland, Austria and Sweden is higher, and yet their economies grew faster than in Switzerland.
3. There is no clear scientific evidence that high government spending is bad for economic growth. PDF
4. Between Reagans tax cuts and the boom tax were increased three times: Once by Reagan, once by Bush senior, and once by Clinton shortly before the boom started.
So why the slow economic growth in Switzerland? Tobias Straumann:
It seems that the responsible ones are the ones talking about liberalisation and low government spending while making sure that cartels and marketing arrangement bloom here like nowhere else. And there is no end in sight.
Reading the paper mentioned above by Sanghoon AHN ¹ and Philip Hemmings (*Policy Influences on Economic Growth in OECD Countries: An Evaluation of the Evidence*), we find the following summary on page 32 related to government spending:
Arguments in favour of fiscal prudence range from crowding-out effects (in conjunction with previous comments concerning the role of capital) to the need for prudent fiscal policy as an adjunct to credible monetary policy. Evidence based on cross-country growth regressions of relations between total expenditure revenue and growth is mixed. Studies using separate components of revenue and expenditure in growth regressions seem to imply that this could be because the effect of fiscal policy on growth depends importantly on what expenditures are devoted to, and how they are funded.
For more discussion, see paragraphs 104-107, and specially paragraph 107 on page 36.