The plots do not support the hypothesis that small government produces either greater prosperity or greater freedom. (In reading the charts, remember that the SGOV index is constructed so that 0 indicates the largest government and 10 the smallest government.) Instead, smaller government tends to be associated with less prosperity and less freedom. Both relationships are statistically significant, with correlations of 0.43 for prosperity and 0.35 for freedom.
Using SoG, the Cato measure of size of government, instead of SGOV, the IMF measure, does not help. The correlations turn out still to be negative and statistically significant, although slightly weaker.
Let’s turn now to the alternative hypothesis that quality of government, rather than size, is what counts for prosperity and freedom. Here are those scatterplots:
This time, both relationships are positive. High quality of government is strongly associated both with greater human prosperity and greater human freedom. Furthermore, the correlations are much stronger than those for the size of government.
That is all by Ed Dolan, recommended, and by the way smaller governments are not correlated with higher quality governments.