Lesson For States: Economic Freedom Means Prosperity; NCPA/Fraser Study Ranks States From Most Free (Del.) to Least Free (W.V.)

12/10/2002

From: Sean Tuffnell or Richard Walker, 1-800-859-1154, both of the National Center for Policy Analysis; E-mail: stuffnell@ncpa.org

DALLAS, Dec. 10 -- At a time when the United States and U.S.-backed international financial institutions are encouraging countries around the world to adopt free market economies, a new study examines how well our own states fare by that measure. 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.

"It's easier to give advice than follow it," said NCPA Research Manager Devon Herrick, "but the pay off is significant for those states that promote economic freedom."

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.

"With few exceptions, economic freedom and prosperity go hand in hand," said Herrick. "States with low taxes and limited government tend to grow faster than states where the opposite is true." 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

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Economic Freedom Index

Rank..State..Economic Freedom Score...Gain (Loss) in Per Capita GDP(a)

Top Ten

1......DE.....8.4......................$3,660 2......TN.....8.3......................$3,328 3......CO.....8.2......................$2,995 4......IN.....8.1......................$2,662 4......SD.....8.1......................$2,662 6......NH.....8.0......................$2,329 7......AZ.....7.9......................$1,997 7......GA.....7.9......................$1,997 7......MA.....7.9......................$1,997 7......MO.....7.9......................$1,997

11.....AL.....7.8......................$1,664 11.....NV.....7.8......................$1,664 11.....TX.....7.8......................$1,664 14.....CT.....7.7......................$1,331 14.....LA.....7.7......................$1,331 14.....PA.....7.7......................$1,331 17.....FL.....7.6......................$998 17.....IL.....7.6......................$998 17.....SC.....7.6......................$998 17.....VA.....7.6......................$998 21.....KS.....7.5......................$666 21.....NE.....7.5......................$666 23.....MI.....7.4......................$333 23.....NC.....7.4......................$333

Median

25....MD......7.3......................$0 25....NJ......7.3......................$0 25....WY......7.3......................$0

28....KY......7.2......................($333) 28....MS......7.2......................($333) 28....WI......7.2......................($333) 31....MN......7.1......................($666) 31....OK......7.1......................($666) 33....IA......7.0......................($998) 33....OH......7.0......................($998) 35....CA......6.9......................($1,331) 35....HI......6.9......................($1,331) 38....AR......6.8......................($1,664) 38....NY......6.8......................($1,664) 38....VT......6.8......................($1,664)

Bottom Ten

41....ID......6.7......................($1,997) 41....OR......6.7......................($1,997) 43....NM......6.6......................($2,329) 44....WA......6.5......................($2,662) 45....RI......6.4......................($2,995) 46....ME......6.3......................($3,328) 46....ND......6.3......................($3,328) 48....MT......6.2......................($3,660) 49....AK......6.1......................($3,993) 50....WV......5.8......................($4,992)

(a) Note: Gain (Loss) in per capita GDP reflects the estimated amount of economic activity per person that a state gains (or loses) compared to the average state based on its level of economic freedom.