I can think of 2 reasons: * Managing a large economy is more expensive than a small one: for example creating legislation and managing a justice system for 100

I can think of 2 reasons: * Managing a large economy is more expensive than a small one: for example creating legislation and managing a justice system for 100 companies is cheaper than doing the same for 10000 companies. * Tax revenue is typically more or less fixed percentage of GDP. The first point is something you can't really avoid without impairing the government. The second one you probably could with political decisions.