Economic Freedom at the Local Level & Other Related Topics Prof. Dean Stansel Florida Gulf Coast University

Economic Freedom Project – – Fraser Institute – – Economic Freedom of the World Economic Freedom of North America Human Freedom Index of the World

incorporates both economic and personal freedom US ranks 7th -- 6th for economic and 21st for personal Data is from 2008, so does not reflect policies of the current administration The top six were New Zealand, the Netherlands, Hong Kong, Australia, Canada, and Ireland.

Human Freedom Index of the World We actually scored higher numerically on personal freedom than economic freedom (8.7 on 0-10 scale, vs for EF) –there were a bunch of countries above us with relatively high personal freedom and not so high economic freedom (e.g., Uruguay, 2nd in PF, 72nd in EF; Portugal, 10th and 48th,...). Source: Towards a Worldwide Index of Human Freedom, Fraser Institute & Liberales Institute, 2013 (at See also: freedom-indexhttp:// freedom-index

Economic freedom varies across nations. –The U.S. is more free than Mexico, but less free than Canada. –Economic Freedom of the World Economic freedom varies across states within nations –Indiana is more free than Kentucky but less free than Tennessee. –Economic Freedom of North America –Freedom in the 50 States

Economic freedom also varies within states. –Lexington is more free than Owensboro, but less free than Louisville. –All three of those are less free than Bloomington, Indianapolis, and every other metro area in Indiana. This paper provides the first attempt to address that variation by measuring economic freedom at the local level.

Economic Freedom & Prosperity Large volume of econometric literature examines the relationship between economic freedom and prosperity (among many other things). Almost all of it uses national or state data.

Three Problems with National and State Studies 1.Large differences in culture and institutions (esp. across nations) 2.Relatively arbitrary boundaries 3.Relatively small number of observations (nations or states)

Three Advantages of Local Studies 1.Much smaller differences in culture and institutions 2.Metro area boundaries represent the local labor market 3.Many more observations (nearly 400 metro areas)

An Economic Freedom Index of U.S. Metropolitan Areas Dean Stansel Florida Gulf Coast University Journal of Regional Analysis and Policy, 43, 1 (2013): or

Fiscal Data 1.From Census of Governments, done every 5 years (ending in 2 & 7). 2.Local data is for ALL local governments within each county. 3.State averages added to local data to facilitate comparisons across metros in different states. a.Local spending ranges from about 20% of state & local spending (HI) to 70% (NV). b.State of largest central city used if >1.

Labor Market Freedom Data 1.In 2002, 11 states had their own minimum wage higher than the federal level of $5.15 (28 in 2007). 2.Only one city also did so (Washington, DC). (By 2007, San Francisco, Albuquerque, and Santa Fe did too.) 3.Variation here is mostly across states, not metros.

Labor Market Freedom Data-2 3.Union density data from Hirsch and McPherson (Union Stats website) 4.Used state union density b/c: Missing data for 143 of 384 metros. They state: “Note: Sample size (Obs) for many cells are small and should be used with care.” Two examples: Athens, GA, 0% union density in 2005, 11% in 2007 McAllen, TX, 0.5% in 2005 and 12.3% in 2007

Calculations Each area equally weighted Each variable equally weighted within each area Each variable given value b/w 0 and 10 score = ((Max-Obs)/(Max-Min))*10

Video Break Occupational Licensing –Restricts freedom –Reduces mobility of workers –Institute for Justice report fight

Regulation Capture Theory Bootleggers and Baptists

Summary of Results All of top 10 are in states with no tax on labor income (FL, NH, SD) 9 of bottom 10 are in California or New York (and 15 of bottom 20) Only 4 of top 10 were in top 10 before adding labor market freedom 6 of bottom 10 were the same

Economic Freedom in Louisville Louisville ranked 215 out of the 384 metropolitan areas in the U.S. It ranked 1st out of the 5 metro areas in Kentucky, but behind all 14 areas in Indiana.

Rank AreaOverall EFI 215Louisville-Jefferson County, KY-IN MSA Elizabethtown, KY MSA Lexington-Fayette, KY MSA Bowling Green, KY MSA Owensboro, KY MSA6.38

Rank AreaOverall EFI 71Evansville, IN-KY MSA Fort Wayne, IN MSA Elkhart-Goshen, IN MSA Indianapolis-Carmel, IN MSA Lafayette, IN MSA Muncie, IN MSA South Bend-Mishawaka, IN-MI MSA Bloomington, IN MSA Anderson, IN MSA Columbus, IN MSA Terre Haute, IN MSA Michigan City-La Porte, IN MSA Gary, IN MD Kokomo, IN MSA6.71

Unemployment Is Much Lower in Metro Areas with Higher Economic Freedom

Per Capita Income Is Higher in Metro Areas with Higher Economic Freedom

Research Using the MEFI Bologna, Jamie, et. al. “A Spatial Analysis of Entrepreneurship and Institutional Quality: Evidence from U.S. Metropolitan Areas” Journal of Regional Analysis and Policy, forthcoming. –Increases in freedom were associated with increases in entrepreneurial activity “A Spatial Analysis of Incomes and Institutional Quality: Evidence from US Metropolitan Areas”

Related Research Stansel, Dean. “Why Are Some Cities Growing While Others Are Shrinking?” Cato Journal, 31, 2 (Spring/Summer 2011), Stansel, Dean. “Higher Taxes, Less Growth: The Impact of Tax Burden on Economic Growth in U.S. Metropolitan Areas,” Policy Brief, April 2009, National Foundation for American Policy, Arlington, Virginia,

Lower Tax Areas Grow Faster

High-Growth Areas Have Lower Taxes

Taxes & Growth in Detroit 1980: Detroit & Dallas were about the same size. –Since then Dallas’ population has more than doubled –Detroit has shrunk –Over that period, taxes in Detroit averaged 11.3% of income, compared to 9.1% in Dallas. All of the other 14 metropolitan areas in MI have had lower taxes than Detroit and all 14 have had better economic performance since 1980 (based on the growth of population, employment, and personal income).

Possible future directions 1.Switch from metropolitan divisions (MD’s) to their larger MSA’s. 2.Do separate ranking for largest MSA’s (population of 1 million+) 3.Incorporate Wharton Residential Land Use Regulatory Index (Gyourko et al.) 4.Use population-weighted state fiscal data for multi-state metros 5.Other measures of regulatory burden?

Prescription for Growth 1.Rein-in spending 2.Reduce the regulatory burden 3.Lower taxes

Prescription for Growth INCREASE ECONOMIC FREEDOM

Case Study/Video Sandy Springs, Georgia “The City That Outsourced Everything” springs-georgia-the-city

An Economic Freedom Index for U.S. Metropolitan Areas Journal of Regional Analysis and Policy, 43, 1 (2013), Prof. Dean Stansel Florida Gulf Coast University