Colorado 's light hand with labor laws and business regulation and its relatively small government make it one of the most economically free states in the country.

Economic freedom translates into economic growth, said Devon Herrick, a fellow with the National Center for Policy Analysis in Dallas, one of two free-market think tanks behind the North American Index of Economic Freedom released Tuesday.

"If you tie someone's hands and don't let them act economically, you limit growth," Herrick said.

Still, the study doesn't explain why Colorado suffered higher job losses and slower growth than other states in the past two years. Herrick said the state's flexibility should help an economic recovery.

Colorado scored 8.2 on a 10-point scale, tying for first with Delaware , South Dakota and Tennessee . Colorado ranked third last year.

Vancouver, British Columbia-based Fraser Institute co-wrote the study, which considered government spending as a percentage of the overall state economy, government employment as a percentage of total employment, transfer payments, taxation levels, and the flexibility of labor laws.

Colorado made the top five on all measures except for its state and local tax burden, where it ranked 15th.

Colorado and the other top three finishers reported an average of $2,954 more per person in state economic output than the country as a whole from 1994 to 2001.

West Virginia , the bottom state in the ranking, lagged the nation by $4,431 in per-capita state gross domestic product.

State Senate President John Andrews, R-Centennial, attributed Colorado's high ranking to the "good sense" of state voters in keeping government small and in passing the Taxpayer's Bill of Rights, or TABOR, a constitutional amendment that limits tax increases and government spending.

Andrews said he is not concerned that the handful of bills floating through the statehouse this session will derail Colorado 's ranking. But he is concerned that a potential ballot initiative could overturn TABOR this fall.

Although the link between less government and more prosperity has been tested over two decades, it doesn't equate to a direct cause and effect.

New York and Alaska are much stronger economically than might be expected from their freedom scores, while Louisiana and Indiana , in contrast, have much weaker economies than their freedom scores would otherwise indicate