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Economic Freedom of North America 2020 Dean Stansel, José Torra & Fred McMahon Economic Freedom of North America 2020 The map uses the subnational index. MOST FREE 2ND QUARTILE 3RD QUARTILE LEAST FREE Economic Freedom of North America 2020 Dean Stansel, José Torra, and Fred McMahon FRASER I N S T I T U T E Fraser Institute 2020 ii / Economic Freedom of North America 2020 / Stansel, Torra, McMahon Copyright ©2020 by the Fraser Institute. All rights reserved. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. The opinions expressed by the authors are those of the individuals themselves, and do not necessarily reflect those of the Fraser Institute, its Board of Directors, its donors and supporters, or its staff. This publication in no way implies that the Fraser Institute, its directors, or staff are in favor of, or oppose the passage of, any bill; or that they support or oppose any particular political party or candidate. Printed and bound in Canada Date of issue: 2020 Cover design by Peng Wei. Cite this publication Authors: Dean Stansel, José Torra, and Fred McMahon Title: Economic Freedom of North America 2020 Publisher: Fraser Institute Date of publication: 2020 Digital copy available at <https://www.fraserinstitute.org/studies/economic-freedom-of-north-america-2020>. Cataloguing Information Stansel, Dean Economic freedom of North America 2020 / Dean Stansel, José Torra, and Fred McMahon. 2002– Issues for 2004– have subtitle: Annual report; issues for 2008– have subtitle: Annual report (Canadian edition); issues for 2010– have subtitle: 2010; issues for 2011– have subtitle: 2011; issues for 2012– have subtitle: 2012; issues for 2013– have subtitle: 2013; issues for 2014– have subtitle: 2014; issues for 2015– have subtitle: 2015; issues for 2016– have subtitle: 2016; issues for 2017– have subtitle: 2017; issues for 2018– have subtitle: 2018; issues for 2019– have subtitle: 2019; issues for 2020– have subtitle: 2020. ISSN 1910-1945 North American version: 978-0-88975-622-9 (2020 edition) US version: 978-0-88975-623-6 (2020 edition) Fraser Institute / www.fraserinstitute.org Contents Executive Summary / v Chapter 1. Economic Freedom of Canada, the United States, and Mexico in 2018 / 1 Chapter 2. Economic Freedom of the Mexican States in 2018 / 25 Chapter 3. Detailed Tables of Economic Freedom in Canada, the United States, and Mexico / 35 Appendix A. Methodology / 57 Appendix B. Explanation of Components and Data Sources / 62 Appendix C. Selected Recent Publications Using Economic Freedom of North America / 72 About the Authors / 81 Acknowledgments / 82 Our EFNA Network / 83 About This Publication / 94 Supporting the Fraser Institute / 95 Purpose, Funding, and Independence / 95 Peer Review / 96 www.fraserinstitute.org / Fraser Institute / iii iv / Fraser Institute / www.fraserinstitute.org Executive Summary Economic Freedom of North America in 2018 Economic Freedom of North America 2020 is the sixteenth edition of the Fraser Institute’s annual report. This year it measures the extent to which—in 2018, the year with the most recent available comprehensive data—the policies of individual prov- inces and states were supportive of economic freedom, the ability of individuals to act in the economic sphere free of undue restrictions. There are two indices: one that examines provincial/state and municipal/local governments only and another that includes federal governments as well. The former, our subnational index, is for comparison of individual jurisdictions within the same country. The latter, our all- government index, is for comparison of jurisdictions in different countries. For the subnational index, Economic Freedom of North America employs 10 variables for the 92 provincial/state governments in Canada, the United States, and Mexico in three areas: 1. Government Spending; 2. Taxes; and 3. Labor Market Freedom. In the case of the all-government index, we incorporate three additional areas at the federal level from Economic Freedom of the World (EFW): 4. Legal Systems and Property Rights; 5. Sound Money; and 6. Freedom to Trade Internationally; and we expand Area 1 to include government investment (variable 1C in EFW), Area 2 to include top marginal income and payroll tax rate (variable 1Dii in EFW), and Area 3 to include credit market regulation and business regulations (also at the federal level). These additions help capture restrictions on economic freedom that are difficult to measure at the provincial/state and municipal/local level. Results for Canada, the United States, and Mexico The all-government index The all-government index includes data fromEconomic Freedom of the World (Gwartney, Lawson, Hall, and Murphy, 2020) which is only available on the national level. These data enable us to make better comparisons among Canadian, Mexican, and US subnational jurisdictions by taking into account national policies that affect all jurisdictions within each country. Canada and the United States have similar scores in the EFW report and are both are typically in the top 10 nations. Mexico ranks much lower, at 68th this year, though that is an improvement over past years. The top jurisdiction is New Hampshire at 8.16, followed by Florida and Idaho at 8.10 , then Wyoming (8.09) and Utah (8.08). Alberta is the highest ranking Canadian www.fraserinstitute.org / Fraser Institute / v vi / Economic Freedom of North America 2020 / Stansel, Torra, McMahon province, tied for 9th place with a score of 8.06. The next highest Canadian province is British Columbia in 27th at 7.98. Alberta had spent seven years at the top of the index but fell out of the top spot in the 2018 report (reflecting 2016 data). In 2015, Albertans elected new political leaders who made changes in taxation, spending, and regulation that had a negative effect on economic freedom. In 2019, Albertans elected politicians who reversed the course of policy and it will be interesting to see what impact this will have on the province’s level of economic freedom in future years. The highest-ranked Mexican state is Jalisco with 6.70, followed by Tlaxcala (6.66) and Mexico (6.62). They are nearly a full point behind those ranking lowest in Canada and the United States, although that gap has been shrinking. The low- est-ranked state is Ciudad de México at 5.77; slightly better are Colima at 5.95, and Tamaulipas at 6.20. The four lowest-ranked Canadian provinces are all within less than one tenth of a point of each other and are behind all 50 US states. The province of Newfoundland & Labrador and nearby Prince Edward Island are tied for 59th with 7.61, just behind Nova Scotia (58th) at 7.66, and New Brunswick (57th) at 7.67. The lowest-ranked states in the United States are Delaware at 7.72 in 56th place, following Rhode Island (7.76 in 54th) and New York (7.77 in 53rd). Historically, average economic freedom in all three countries peaked in 2004 at 7.70 then fell steadily to 7.21 in 2011. Canadian provinces saw the smallest decline, only 0.20, whereas the decline in the United States was 0.48 and, in Mexico, 0.59. Since then it has risen slowly to 7.40 but still remains below that 2004 peak. However, eco- nomic freedom has increased in the United States and Mexico since 2013. In contrast, in Canada, after an increase in 2014, it has fallen back below its 2013 level. The subnational indices For the purpose of comparing jurisdictions within the same country, the subnational indices are the appropriate choice. There is a separate subnational index for each country. In Canada, the most economically free province in 2018 was again Alberta with 6.61, followed by British Columbia with 5.98, and Ontario at 5.16. However, the gap between Alberta and second-place British Columbia continues to shrink, down from 2.28 points in 2014 to 0.63 in 2018. The least free by far was Quebec at 2.84, following New Brunswick at 4.08, and Nova Scotia at 4.20. In the United States, the most economically free state was New Hampshire at 7.84, followed by Florida at 7.73. Virginia is third at 7.62; Texas is fourth at 7.61; and Tennessee is fifth at 7.55. (Note that since the indexes were calculated separately for each country, the numeric scores on the subnational indices are not directly com- parable across countries.) The least-free state was New York at 4.25, following West Virginia at 4.50. Alaska was 48th at 4.67, California was 47th at 4.71, and Vermont was 46th at 5.08. In Mexico, the most economically free state was Jalisco at 6.57. Michoacán de Ocampo was second at 6.39, followed by Baja California at 6.04. The least free Mexican states were Zacatecas at 2.77, Campeche at 2.78, and Tabasco at 3.44 Fraser Institute / www.fraserinstitute.org Stansel, Torra, McMahon / Economic Freedom of North America 2020 / vii In addition to the tables found in chapter 3, our new interactive website at www. freetheworld.com contains all the latest scores and rankings for each of the components of the index as well as historical data on the overall and area scores. The full dataset is also available for download at that same website. Economic freedom and economic well-being at the subnational level The jurisdictions in the least economically free quartile (one fourth) on the all- government index had, in 2018, an average per-capita income of just US$2,277, com- pared to US$50,645 for the most economically free quartile. On the subnational index, the same relationship holds, with the least-free quartile having an average per-capita income 8.1% below the national average, while the most-free quartile was over 4.6% above it.
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