by Dr. Eowyn
Economic freedom is correlated with, and leads to, economic prosperity. The more economically free, the greater the prosperity.
The most recent research is consistent with past studies: Greater economic freedom is correlated with higher local government credit ratings, more net in-migration of population, increased overall income, and increased per capita income.*
*Dove, John. (2017). “The relationship between local government economic freedom and bond ratings,” Journal of Financial Economic Policy, 9(4):435-49.
Economic freedom depends on, and is defined by, government policies, including:
- Government spending: expenditures, transfers, subsidies, insurance and retirement payments as a percentage of personal income.
- Taxation: income, payroll, sales, property and other taxes as a percentage of personal income.
- Labor market freedom: Minimum wage, government employment, private union members.
Several institutes rank U.S. states in how economically free and competitive they are, including the Tax Foundation, Mercatus Center, and Fraser Institute. But there are no rankings of cities, although economic freedom can vary quite widely within the same state.
Dr. Dean Stansel of Southern Methodist University has done just that, with a 22-page report for the Reason Foundation, “U.S. Metropolitan Area Economic Freedom Index,” ranking the economic freedom in 2012 of 382 large U.S. metropolitan areas, which he calls Metropolitan Statistical Areas (MSA), defined as a large city plus its economically relevant suburbs.
Note: Stansel is a research associate professor at the O’Neil Center for Global Markets and Freedom in the Cox School of Business at Southern Methodist University.
Those MSAs are divided into two groups:
- 52 large MSAs with a population of one million of higher.
- 330 small MSAs with population below one million.
These are Dr. Stansel’s findings:
(1) Economic freedom and prosperity: In 2012, the top quartile (top 25%) of MSAs in economic freedom had a per capita personal income 5.70% above the MSA average. In contrast, the per capita personal income of the lowest quartile of MSAs in economic freedom was 4.86% below the MSA average.
(2) Top 10 Large MSAs in Economic Freedom, i.e., 10 Most-Free Large MSAs:
- Houston-The Woodlands-Sugar Land, Texas
- Jacksonville, Florida
- Tampa-St. Petersburg-Clearwater, Florida
- Richmond, Virginia
- Dallas-Fort Worth-Arlington, Texas
- Nashville-Davidson—Murfreesboro—Franklin, Tennessee
- Miami-Fort Lauderdale-West Palm Beach, Florida
- Austin-Round Rock, Texas
- Orlando-Kissimmee-Sanford, Florida
- San Antonio-New Braunfels, Texas
(3) Ten Least-Economically-Free Large MSAs:
- Riverside-San Bernardino-Ontario, California
- Rochester, New York
- Buffalo-Cheektowaga-Niagara Falls, New York
- New York-Newark-Jersey City, NY-NJ-PA
- Cleveland-Elyria, Ohio
- Columbus, Ohio
- Portland-Vancouver-Hillsboro, Oregon
- Sacramento-Roseville-Arden-Arcadee, California
- Providence-Warwick-Pawtucket, Rhode Island
- Los Angeles-Long Beach-Anaheim, California
(4) Ten Most-Free Small MSAs:
- Naples-Immokalee-Marco Island, Florida
- Midland, Texas
- Sebastian-Vero Beach, Florida
- Sioux Falls, South Dakota
- Manchester-Nashua, New Hampshire
- The Villages, Florida
- Tyler, Texas
- Crestview-Fort Walton Beach-Destin, Florida
- Pensacola-Ferry Pass-Brent, Florida
- San Angelo, Texas
(5) Ten Least-Free MSAs:
- El Centro, California
- Kingston, New York
- Visalia-Porterville, California
- Binghamton, New York
- Glens Falls, New York
- Ocean City, New Jersey
- Merced, California
- Yuba City, California
- Atlantic City-Hammonton, New Jersey
- Vineland-Bridgeton, New Jersey
As you can see from the above lists, states with no income tax (Florida, Texas) tend to have MSAs that are most economically free, whereas the least free MSAs are found in states known for their socialist governments (California, New York, New Jersey).
(6) U.S. Map of Economic Freedom of MSAs: