Page last updated at 23:49 GMT, Sunday, 6 April 2008 00:49 UK

Low taxes 'boost public sector'

Is it time for the UK to go on a diet?

Countries with low taxes are better able to boost funding for public services and enjoy higher growth, a report from a UK think tank suggests.

And so called "slim governments" have created more jobs while income distribution has not been harmed.

The findings are based on data, from 20 nations over 10 years, for the World Bank and International Monetary Fund.

The report by the Centre for Policy Studies seeks to show that low tax governments work better.

Slimming needed?

The findings contradict the assumption that for developed nations there is "little or no scope" to cut taxes, said Jill Kirby, director of the Centre for Policy Studies.

The report, called Big, Not Better?, has been written by economist Keith Marsden, who has been a senior consultant to a number of UN agencies.

The report showed that slim governments have significantly higher average growth rates - with GDP increasing by 5.4% on average between 1999 and 2008 - compared to 2.1% for "bigger" governments during the same time-frame.

In addition, average employment growth rates tends to be higher for slimmer governments.

Mr Marsden says: "This evidence firmly rejects the widely held view that lower taxes inevitably result in cuts in public services, or at best their slower growth, and wide income disparities."

It also raises the question whether it is time for the UK "to go on a diet", said Ms Kirby, as UK government expenditure reaches 42% of GDP.

The report also found that lower tax governments spent more on both defence as well as law and order than their larger tax counterparts.

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