The COVID pandemic has sparked increased government spending worldwide including here at home.
Many countries have introduced substantial fiscal packages with direct household income supports, loans, guarantees, tax deferrals and other supports along with increased health-related spending.
With declining economic activity and tax revenues, governments are financing the spending with more government borrowing and ultimately more debt, which raises the spectre of future inflation and higher taxes.
If current levels of government spending become entrenched, this does not auger well for future global economic growth given that, according to international evidence over the last 150 years, larger government sectors are associated with slower growth rates.
Simply put, while good government promotes growth, poor government or excessively large government can reduce productivity and harm economic growth.