Arizona and metro Phoenix rate high for economic freedom

Arizona has some of the highest ratings for economic freedom in North America and the nation, according to several recent studies. Metro Phoenix also received high ratings in the first study of economic freedom in American cities released last month.

That’s good news for citizens and businesses who reap more bounty in the “most-free” regions, said Dean Stansel, lead author of the annual Economic Freedom of North America 2018 and author of the first economic index for cities, the U.S. Metropolitan Area Economic Freedom Index.

“Areas with high economic freedom tend to have more prosperous economies and benefit in many ways with higher personal income, better health, and more entrepreneurship and innovation,” said Stansel, a research associate professor at the O’Neil Center for Global Markets in the Cox School of Business at Southern Methodist University in Dallas.

For example, in the new metropolitan index report, cities with the highest economic freedom rankings show a per capita income 5.7 percent higher than average compared to 4.9 percent lower in the least-free areas, he said.

Population growth also climbed four times faster in the the highest ranking areas at 5 percent compared to only 1.2 percent in “least-free” regions.    

“Living in one of the least-free areas amounts to taking an 11 percent pay cut compared to living in one of the most-free,” Stansel said. “The slower population growth there also creates a more stagnant economy with fewer economic opportunities for all.”

To measure economic freedom, researchers and economists analyze data on personal income, government regulation, property rights, tax rates, government expenditures, population growth, trade practices, regulatory environment and more.

Currently, there are about a dozen think tanks worldwide including the Heritage Foundation and the Cato Institute that do their own studies or contribute to the Fraser Institute’s comprehensive annual report on economic freedom worldwide.

Arizona ranks high in all of them.   

This year, the non-profit think tank, the Reason Foundation in Los Angeles, released the first comprehensive study on American cities. In it, Phoenix ranks 19th out of the 52 largest metro regions.

Criteria for economic freedom began to emerge in the 1980s with American economist Milton Friedman and others. Friedman, a Nobel Prize winner, promulgated capitalism and free markets, gaining international fame for his work and humorous remarks like,  “Nothing is so permanent as a temporary government program.”

Friedman and others worked with the Fraser Institute to develop criteria from the Census, World Bank, International Monetary Fund, Global Competitiveness Report, International Country Risk Guide and PricewaterhouseCoopers. In 1996, the institute issued the first annual Economic Freedom of the World with an economic freedom index for more than 120 nations.

Here are the highlights:

Economic Freedom in North America 2018

Arizona tied for sixth place with Oklahoma and Alberta, Canada in the report.

Meanwhile, the three best states for economic freedom are: New Hampshire, Florida and South Carolina.

The three lowest are in Mexico: Campeche, Colima and Mexico City.

In the same study, American states also were ranked separately. Arizona came in at No. 10.   

The top three states are: Florida, New Hampshire and Texas.

The bottom three are: California, New York and Hawaii.

Among the findings for Arizona:

• State and local taxes are well below average.
• Local taxes are around the national average but because the state depends heavily on sales taxes, it permits generally low individual and business income taxes.
• Debt and government consumption are below average.
• On regulatory policy, Arizona is one of the best in the country in terms of anti-cronyism, business entry and prices, and occupational licensing.
• Arizona saw lower ratings for restrictive labor practices, mainly for its higher-than-federal minimum wage due to Proposition 206. The law initiated four years of mandated wage hikes starting with an increase to $8.05 per hour in 2016 and going up to $12 per hour by 2020.

Most and least free American cities

Phoenix metro ranks in the top 20 for largest metro areas with the most economic freedom in the first U.S. Metropolitan Area Economic Freedom Index released in January. The study was commissioned by the Reason Foundation that advocates for libertarian principles including free markets that promote “choice, competition and dynamic market economy.”

Researchers analyzed the U.S. Census of Governments that is conducted every five years and surveys more than 90,000 individual local governments to collect data on various detailed components of taxes, spending, debt, and government employment.

In the report, the Phoenix-Mesa-Scottsdale region ranks 19th out of 52 large metro regions.

At the top of the rankings are: Houston, Jacksonville, Tampa, Richmond and Dallas-Fort Worth.

At the bottom? Riverside, California, Rochester and Buffalo, New York, and Cleveland.