Conventional wisdom holds that there is a tradeoff between an expansive welfare state and the dynamism of a country’s economy. Bigger government gets in the way of entrepreneurship, the thinking goes, thereby holding back innovation and job creation.
There is data that seems to bear this out; research has found a negative correlation between a country’s level of government spending and its rate of new business creation. But a new paper from a researcher at The World Bank adds some much-needed nuance to the conversation, making the point that not all government spending is equal.
