There is often a lot less than meets the eyes in these types of summaries. The article being quoted may be found at http://www.heritage.org/research/bud...ppl.cfm#_ftn11.
The first argument, labeled "Extraction Costs", is based on Martin Feldstein's concept of "economic burden". This is an accepted principle that there are distinct costs associated with increasing taxes that reduce the effectivenees of tax increases in raising revenues. While this has been analyzed in some detail and is widely accepted, the measurement of that cost is tricky and it is even harder to separate those costs that are related to change and complexity from those that are permanent. The real argument behind much of the econopmetric studies has been to try to identify methods of taxation that minimize distortions associated with tax systems that are complex or that favor some types of behavior over others.
The second argument, labeled "Displacement Costs" basically argues that goernment spending displaces more productive private spending. Most of the references included in the article are actually related not so much at government expenditures as at government deficits, noting that they reduce the amount of capital available for productive investments. Thise same studies (for example the cited EU study, which may be found at http://ec.europa.eu/economy_finance/...on10063_en.pdf, discuss actual deficits incurred relative to a "desirable" level of deficit that may help to stimulate an economy in trouble. Of course, this same model makes it clear that deficits incurred when an economy is growing rapidly are harmful, a point I have made frequently. A number of other references are based on a labor displacement effect when labor is otherwise fully utilized (Not exactly oour situation today.).
The article then discusses measurement of the effects of government spending. The first reference, from the Quarterly Journal of Economics, is interestingbecause it is an article that basically argues that large disparities of income in an otherwise advanced democracy, or exclusion of large parts of a population from productive resources is generally associated with slow growth. The solution, of course, is to avoid such large distributional discrepancies, a point that seems to have been missed by The Heritage Foundation.
The next reference is a Republican staff report, not research. The next reference from the Dallas Fed states that tax increases to reduce deficits have a contractionary effect -- Duh...that's the whole idea of running a surplus when the economy is in a boom. It helps to avoid bubbles and is a lot less painful than what we face now.
Again, the EC and IMF references are basically studies that say don't run big deficits when the economy is growing or you'll mess it up. Would that we had followed that advice over the last six years. I haven't been able to review the Guseh article but it covered five years of data and apparently said that small governments slow growth and medium sized governments stimulate growth. Most of the "telling" citations are actually theoretical pieces not backed by empirical research. The quantitative studies that are included in the citations are all based on cross country analyses that, in large part, are comparing the growth rates of former Soviet states and developing countries with the growth rates of the US, Japan, European countries, etc. The range of variability in the data are limited and the conclusions are not very dramatic.
On balance, my own reading of this article is that it lacks substance and is more interested in promoting a political message than in analyzing the limited data available.