NCPA - National Center for Policy Analysis

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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