Determining Economic Freedom: Democracy, Political Competition, and the Wealth Preservation Struggle

The beneficial effects of economic freedom on living standards and social outcomes are many and well-documented. We examine factors that explain economic freedom. First, we use the fifty US states as our unit of analysis to evaluate how economic freedom is determined in a competitive political system, where resources are mobile across borders. Second, we employ a multiequation model that includes the effects of economic freedom on income, employment, and income distribution. This model yields many interesting results, including support for the hypothesis that stakeholders, with wealth put at risk by government policies, are crucial players in the political process that determines economic freedom.