Economic Freedom and Prosperity
December 10, 2002
The United States and international financial institutions are encouraging countries around the world to adopt free market economic reforms. A new study examines how well American states and Canadian provinces fare on a measure of economic freedom. The study, released today by the National Center for Policy Analysis (NCPA) and Canada's Fraser Institute, shows a remarkable diversity among the 50 U.S. states and 10 Canadian provinces.
The study ranks all 50 states based on overall economic freedom. Delaware ranks as most free; West Virginia as least free. The rankings are based on factors such as size of the tax burden, size of government and flexibility of the state's labor market. For example:
- The tax burden among the states ranges from 9.9 percent of income in Delaware to 12.7 percent in Maine.
- Government spending on goods and services ranges from 8.6 percent of all spending in New Hampshire, to 20.8 percent in Alaska.
- Alabama has the most flexible labor market, due in part to lack of a state mandated minimum wage; while Montana has the least flexible labor market with the highest minimum wage relative to average income.
While economic freedom is not the sole determinant of a state's wealth, the correlation is strong. For example:
- The per capita output of goods and services in the top ten states averaged $2,560 more than the average state.
- The per capita output of goods and services in the bottom ten averaged $3,130 less income per person than the average state.
Furthermore, states with low taxes and limited government tend to grow faster than states where the opposite is true.
Source: Amela Karabegovic, et al., "Economic Freedom of North America," December 10, 2002, Fraser Institute and National Center for Policy Analysis.
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