Taxation and public spending is basically a form of collective shopping. For some goods (food, clothing) it makes no sense to buy them collectively. For others (roads, insurance) it does make sense.

Joseph Heath, Filthy Lucre:

One of the goods that can often be purchased most efficiently through taxes is insurance. Since the benefits of an insurance scheme come from the pooling of risks, the size of the gain is often proportional to the size of the pool. As a result, it is in our interest in many cases to purchase insurance using the mechanism of universal taxation and public provision. This is basically how the health care system in Canada works. I pay taxes, and what I get in return is a basic health-insurance policy, provided by the state. So if Canadians want to consume more health care or a new subway or better roads, what are their options? The situation is the same as with the condo residents who want a new sauna: If people want to buy more of this stuff (and are willing to buy less of something else), then they should vote to raise taxes and buy more of it. It doesn't necessarily impose a drag on the economy to raise taxes in this way, any more than it imposes a drag on the economy when the residents of a condo association vote to increase their condo fees.

One can see, then, the absurdity of the view that taxes are intrinsically bad, or that lower taxes are necessarily preferable to higher taxes. The absolute level of taxation is unimportant; what matters is how much individuals want to purchase through the public sector (the "club of everyone"), and how much value the government is able to deliver. This is why low-tax jurisdictions are not necessarily more "competitive" than high-tax jurisdictions (any more than low-fee condominiums are necessarily more attractive places to live than high-fee condominiums). Furthermore, the government does not "consume" the money collected in taxes - this is a fundamental fallacy; it is merely the vehicle through which we organize our spending. In this respect, taxation is basically a form of collective shopping. Needless to say, how much shopping we do collectively, and in what size of groups, is a matter of fundamental indifference from the standpoint of economic prosperity.