Is there any analysis done to empirically determine the relationship between government size and prosperity of a country?
I am not really that familiar with empirical economic research. But it is political argument you run into frequently.
What does the data say?
I would say there are several things to account for in such an analysis. Rich countries could become more dovish(??) and start spending on more on public services when they become rich, hence some correlation analysis would be useless. Also I assume increased spending in one year's budget increases output for that year, I am however more interested on long-term effects.