The conservative Canadian think tank Fraser Institute caused a stir last Wednesday when it ranked six Canadian provinces freer than the state of Florida. But a researcher at Florida State University takes issue with some of thosefindings.
The study was published in the 2012 edition of Fraser's annual "Economic Freedom of North America" report.
It grades the economic freedom of all 50 U.S. states and each of Canada's 10 provinces on a scale from 1 (least free) through 10 (most free), and ranks these territories in comparison with each other.
The report examines key indicators of economic freedom in the U.S. states and Canadian provinces based on size of government, taxation, rule of law and property rights, and regulation using data from 2010 (most recent year available). According to the report, economic freedom represents the ability of individuals and families to make their own economic decisions, free from government interference.
Florida doesn't rank particularly low, but not particularly high, either: the Sunshine State received the 11th highest score of 6.6, tying with Wisconsin, Missouri, and New Jersey. Overall, Canadian provinces lead U.S. states in average economic freedom, with provinces averaging a score of 6.8 out of 10 compared to 6.7 out of 10 for U.S. states.
Six Canadian provinces ranked freer than Florida.
But Florida State University economics professor Randall G. Holcombe, a nationally recognized expert on public finance and the economic impact of public policy, tells Sunshine State News that the studys freedom-measuring indexes are misleading in at least two important respects.
First is the Size of Government index, which considers, among other things, the amount of government transfers (Social Security, Medicare, Medicaid, and other welfare benefits) received by citizens; a state is considered less free the greater the number of residents who are receiving these benefits.
These are primarily federal programs that have nothing to do with any decision-making Florida's state or local governments are making, Holcombe tells the News. Florida scores low because we have lots of retirees, combined with other people who qualify for federal transfer programs. That's one-third of the index that inappropriately ranks Florida low, as I see it.
The reports second index is Takings and Discriminatory Taxation, one component of which is Sales Taxes Collected as a Percentage of GDP.
This component clearly works against the few states that have no state income taxes, again pushing Florida's score down, even though I would argue that not having an income tax increases our economic freedom, Holcombe remarks.
Floridas score for this component will necessarily be higher than in those states that get to rely on income tax revenues, he says. Holcombe concedes that in at least one respect he believes the report does accurately measure reduced economic freedom in the Sunshine State: the lower score Florida receives for its relatively high legal minimum wage.
But overall, I think the way the index is calculated is biased against Florida and makes Florida look less economically free than we really are, Holcombe concludes. [The Fraser Institutes] Economic Freedom of the World index is a much better index than the Economic Freedom of North America index that ranks Florida low.
In the 2012 "World" report, the Institute gave the United States its lowest ranking since 1975: 18th place, making it less free than (among others) Hong Kong, Singapore, New Zealand, Switzerland, Australia, Canada, Bahrain, Mauritius, Finland, and Chile. The United States ranked second in 2000.
Reach Eric Giunta at egiunta@sunshinesstatenews.com or at (954) 235-9116.
