1. The TEXAS Model: #1 in Economic Freedom
Dean Stansel
Starting Jan. 1: Research Associate Professor
O’Neil Center, Cox School of Business, SMU
The “Texas model” ranks No. 1 in economic freedom, an important driver of growth, job
creation and other measures

2. Economic Freedom of North America (EFNA)
Fraser Institute’s ranking of the U.S. states and Canadian provinces.
First published in 2002.
The 2014 report was the 10th edition.
Included Mexican states for 1st time.
I have been the primary author of the last two editions.

3. EFNA Impact
In 2014, got 513 media mentions; exceeded previous high by 79%
Has been cited in over 100 academic journal articles and policy papers.
Compared to other state indices:
Has been produced the longest
Is the only one updated annually
Has the most years of data (32)

4. What Is Economic Freedom?
“Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others.”

5. Area 1: Size of Government
1A: General Consumption Expenditures by Government as a Percentage of GDP
Total Direct Expenditures MINUS:
Capital Outlays; Transfers to Persons, Businesses, and Other Governments; Interest on Public Debt; and Expenditures on State Liquor Stores and Utilities
1B: Transfers and Subsidies as a Percentage of GDP
Includes transfers to persons and businesses such as :
Welfare Payments, Grants, Agricultural Assistance, Food-stamp Payments, and Housing Assistance
1C: "Social Security" Payments as a Percentage of GDP
Includes payments for: Employment Insurance, Workers Compensation, and various pension plans

6. Area 2: Takings and Discriminatory Taxation
2A: Total Tax Revenue as a Percentage of GDP
Total Tax Revenue (minus Severance Tax Revenue) plus Total Insurance Trust Contributions
2B: Top Marginal Income Tax Rate and the Income Threshold at Which It Applies
2C: Indirect Tax Revenue as a Percentage of GDP
Includes: Property Taxes, Contributions to social security insurance
(i.e., employment insurance, Workers Compensation, and various pension plans), and other various taxes. Does NOT include: Income Tax Revenue, Sales Tax Revenue, or Severance Tax Revenue
2D: Sales Taxes Collected as a Percentage of GDP
General Sales & Gross Receipts Tax Revenue plus Selective Sales & Gross Receipts Tax Revenue on Alcohol and Tobacco

7. Area 3: Labor Market Freedom
3A: Minimum Wage Annual Income as a Percentage of Per Capita GDP
3B: Government Employment as a Percentage of Total Employment
3C: Union Density

8. Calculations Each variable given value b/w 0 and 10
score = ((Max-Obs)/(Max-Min))*10
Each variable equally weighted within each area
Each area equally weighted
Overall score is average of 3 area scores

9. Economic Freedom in U.S. States, 1981-2012
The average score in 2012 was 6.5, up from 6.4 in 2011.
That’s down from a peak of in 2006.
From 1981 to 2006, there was a general upward trend from to 6.9.

12. It has been 1st or 2nd for 7 of the last 8 years.
How Does Texas Rank?
Texas ranks 1st.
It has been 1st or 2nd for 7 of the last 8 years.
Available at:

14. Area 1: Government Spending
Texas ranks 1st.
2nd on Variable 1A (consump- tion spending): 10.6% of GDP
2nd on Variable 1B (transfers & subsidies): 0.1% of GDP
5th on Variable 1C (insurance & retirement payments): 1.2% of GDP

15. 4th on 2A (own-source revenue): 7.2% of GDP
Area 2: Taxes
Texas ranks 4th.
4th on 2A (own-source revenue): 7.2% of GDP
1st on 2B (income tax rate): 0%
25th on 2C (indirect tax revenue): 4.9% of GDP
31st on 2D (sales tax revenue): 2.3% of GDP

16. Area 3: Labor Market Freedom
Texas ranks 3rd.
10th on 3A (minimum wage): % of per capita GDP
14th on 3B (government employees): 10.5% of total employees
19th on 3C (union density): 6.8% of total employees

17. Why Does It Matter?
Areas with more economic freedom have higher: GDP, GDP growth, Income (& income share) of poorest 10%, political freedom, civil liberties, life satisfaction, literacy, life expectancy, and environmental quality And, lower: unemployment, child labor, infant mortality rates, and corruption

19. Per Capita Income Is Much Higher in Nations with Higher Economic Freedom
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013

20. Per Capita GDP Growth Is Positively Correlated with Economic Freedom in States

21. Unemployment Is Much Lower in Metro Areas with Higher Economic Freedom

22. Higher Per Capita GDP
The 25% of states considered most free had economic output per capita of about $55,000 versus just $48,200 for the bottom 25%.

23. Higher Population Growth
In the top ten most-free states, population has grown by 5% over the last five years, whereas it has grown less than 2% in the bottom ten.

25. The Texas Model
Over the last 5 years, Texas, the most free state, ranks:
#2 in employment growth (12.1%)
#2 in population growth (8.7%)
#2 in GDP growth (41%)
#2 in personal income growth (34%)
Only ND (#3 in EFNA) ranks higher.

26. The Anti-Texas Model
Over the last 5 years, the least free state (Maine) ranks:
#49 in employment growth (1.0%)
Behind only NM (9th worst in EFNA)
#50 in population growth (0.0%)
#50 in GDP growth (10.6%)
#50 in personal income growth (11.4%)

29. “…no human wisdom or knowledge could ever be sufficient … for the proper performance of … the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.” -- Adam Smith, The Wealth of Nations

30. The TEXAS Model: #1 in Economic Freedom
Dean Stansel
Starting Jan. 1: Research Associate Professor
O’Neil Center, Cox School of Business, SMU
The “Texas model” ranks No. 1 in economic freedom, an important driver of growth, job
creation and other measures