TCS has a refreshing rundown of two recent studies that support the conclusion that less government allows for greater ... well, everything.
Here's a tasty snippet (though I highly recommend you read it in its entirety as it answers the most dim, er..., common questions small government naysayers natter on about):
First, a group of Swiss and Danish researchers from the WIF Institute of Economic Research in Zurich looked at whether government involvement in the economy is conducive to life satisfaction across 74 countries. The results show that life satisfaction actually decreases with higher government spending. This negative impact of the government is stronger in countries with a left-leaning median voter. It is alleviated by government effectiveness - but, crucially, only in countries where the state sector is already small. In general, a one standard deviation increase in government spending yields a median decrease of 4.42 percent in self-reported satisfaction by the voters, a drop in the degree of economic competition of 4.17 percent and a shift in voter preferences in rightward ideological direction of 4.15-9 percent.
Another comprehensive study released by the Centre for Policy Studies (CPS) in the UK summarized available data from various sources, to show that modern governments that spend less can, indeed, provide better public services, a better standard of living and more equitable incomes than high-spending governments. ...
According to the report, "the most surprising finding to some observers is what has happened to public services. In the leaner government group, the growth in spending on public services accelerated to an average annual rate of 4.3% in 2000-2005, up from 2.4% in 1980-90. This suggests that an increased share of national income left in private hands stimulated greater efficiency and faster growth in the private sector, thus boosting individual and corporate tax revenues despite lower rates." The report cites Ireland as the exemplary case of what is known in the economic literature as the expansionary fiscal contraction phenomena - the case of reduced fiscal burdens of the state spending leading to improvement in government revenue. As Ireland's corporate tax rate fell to 12.5 percent, expanding tax base supported 6.4 percent average annual increases in public service spending since 1999, compared with just 0.1 percent growth during the 1980s.