Big Gov is back

"The era of big government is over," Bill Clinton memorably declared in his 1996 State of the Union address, and few disagreed with him. But since the financial crisis, Leviathan has risen from its slumber. Last year, 11 of the 30 OECD member states devoted more than 50 per cent of their GDP to public spending.

In Ireland, where state expenditure was just 36.8 per cent of GDP in 2007, spending swelled to 66.1 per cent as a result of the country's €50bn bank bailout. Elsewhere, the Nordic countries continued to lead the way, though public spending has fallen significantly since the 1990s. In Sweden, for example, where Fredrik Reinfeldt's centre-right coalition was recently re-elected, it fell from 71.7 per cent of GDP in 1993 to 54.5 per cent last year.

Public spending, 2010 (% of GDP)

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More striking is the position of France, where Nicolas Sarkozy, who once promised a "rupture" with the French social model, has emerged as a born-again statist. In the UK, public spending rose from 40.6 per cent of GDP in 1997 to 51 per cent in 2010, well above the OECD average of 44.6. It is expected that the coalition's £81bn spending cuts will reduce government expenditure to roughly 43 per cent of GDP, a level last seen in 2004.

The frequent warning that the cuts will widen inequality is borne out by international evidence. Income inequality is highest in states with low levels of public spending, such as Singapore and the US, and is lowest in states with high levels of spending, such as Denmark and Sweden. Empirical evidence also suggests that the most equal countries are most socially mobile. Unless the coalition reduces inequality - through redistribution or smaller pay differentials - it will struggle to increase social mobility.