The econometric consensus on the effects of social spending confirms a puzzle we confront in the raw data: There is no clear net GDP cost of high tax-based social spending on GDP, despite a tradition of assuming that such costs are large. The paper offers five keys to this free lunch puzzle....

We build an endogenous growth model to analyze the relationships between taxation, corruption, and economic growth. Entrepreneurs lie at the center of the model and face disincentive effects from taxation but acquire positive benefits from public infrastructure. Political corruption governs the...