I think that any argument which argued that small government expenditure could stimulate growth (as suggested by the Rahn Curve) would find it hard to cite any real empirical evidence. I say this because economies in which <10% GDP (I actually believe that the Rhan Curve sets the maximum spending as a percentage of GDP at somewhere right above 20%, and then the growth rate begins to decline) is made by public expenditure tend to grow, and so since there are no tax-free State economies then it’s difficult to quantify whether or not government spending actually stimulated any type of growth. To be honest, however, I’m not sure on the econometrics used to argue in favor of the Rahn Curve. As far as I’ve read, the “optimal spending rate” is chosen arbitrarily. Please correct me if there is actual empirical evidence which proves the Rhan Curve to be coorect.
I’m sure the government could start a public program that was subject to profit and loss, but then that would make the government redundant, since the free market could provide that just as well. The point of government is to provide a “free” service to all of its citizens, so I’m not sure that it would be believable that the State set up some type of enterprised that mimicked the effects of a private enterprise subject to profit and loss. Take the example of USPS—its prices would not be decided by the government in terms of what is “fair” for everybody to pay (since a lot of the funding comes through taxes) and what is necessary to cover losses, but decided upon actual supply and demand, for the sake of making a profit. This would make the government irrelevant, as such a service would be provided by the free market. What the government does, supposedly, is tax in order to guarantee this service universally—in other words, it de facto monopolizes the industry (even if they allow similar private businesses to be set up, the fact that there is a “free” service usually means that private companies are crowded out, or must look to provide a service that the government business does not).
Then, it must be considered that if government was able to make a profit off some of its expenditures, then they would—at some point—have no reason to tax. Their businesses would provide enough revenue to pay for themselves, and then make some other investments. They would be like a private company. The difference is that a State must always have a monopoly on force to survive, and a monopoly on force is never cost efficient, and will always spiral out of control—unless your a State which has socialized other industries, as well, such as Europe and Canada. Inevitably, government must monopolize somethings in order to make its existence relevant, and so ultimately there is a loss of money through inefficient provision of public-goods (such as national defense and security against natural and non-natural “internal threats”). Then, I guess, the question is whether or not the government can set up a business to pay for their armed forces. And, that’s a good question. In the end, though, the fact of the matter is that the tax rate will notably decrease, as the government is paying for itself. It guarantees its existence by, as a State, signing its monopoly on government as a law, and providing all types of security by crowding out any alternatives. But, theoretically, it would still be paying for itself. But, the businesses the government would invest to would necessarily have to respond to profit and loss, and withhold from providing their goods “universally” (no matter the costs)—I think this is where it becomes implausible for a government to make a profit.