Voter Preferences, Institutions, and Economic Freedom

Abstract

The enormous impact that economic freedom can have on economic outcomes makes an understanding of the factors or forces affecting its level paramount. To what extent do citizen preferences regarding the role of government in the economy drive the level of or changes in economic freedom? We explore this question using a new index of voting in the U.S. Congress constructed consistent with the Fraser Institute indices of economic freedom. We use voting on national legislation to examine state‐level economic freedom to clearly separate the measurement of preferences from policies that at least partly reflect these preferences. We find that Congressional votes, both from the House and Senate, are related to increases in state economic freedom, and that the result is generally statistically and economically significant, and robust to inclusion of a variety of socioeconomic control variables. (JEL D72, H10, H50)

Government ideology and economic freedom

“…-Finally, some studies show that the level of education is positively associated with economic freedom (Apergis et al, 2014;Crowley et al, 2017); to account for this effect, we use the Education Index from the 2016 Human Development Report (UNDP, 2016) and expect the same positive relationship; this is consistent with the argument by Caplan (2001) and Caplan and Miller (2010) that higher levels of education yield more liberal economic beliefs.…”

The long‐run effect of government ideology on economic freedom

“…If we decide to take the results at face value, they support the general view of the literature so far, namely that conservative or professed free-market beliefs on the part of parties have modest but positive effects on economic freedom (Bjornskov & Potrafke, 2012, 2013Crampton, 2002;Crowley et al, 2017;Czegledi & Newland, 2018). While the effects found in the article were statistically uneven and not always robust, this actually fits well into the aforementioned already existing literature.…”

“…Bjornskov and Potrafke (2013) subsequently apply a largely similar analysis to the US states and find that Republican governors also deregulate labour markets. Crowley, Dove, and Sutter (2017) find that voter ideology, as measured by a score of US Congressional votes, predicts the Economic Freedom of North America index. Most recently, Czegledi and Newland (2018) find that pro-capitalist ideology across the world correlates with the Economic Freedom of the World index.…”

Economic liberalization, political regimes and ideology

“…Crises are another factor that has been identified as having a negative effect on economic freedom (de Haan et al, 2009; Murphy & Smith, 2017; Stocker, 2016); a dummy that takes the value of one when a financial crises occur ( FinCrisis ) is used to account for this effect; financial crises are identified following the works by Laeven & Valencia (2018) and Nguyen et al (2020, 2021). The level of education is also considered to be associated with economic freedom (Apergis et al, 2014; Crowley et al, 2017); to account for this effect, we use the Education Index ( Education ) from the 2016 Human Development Report (UNDP, 2016) and expect the same positive relationship; this is consistent with the argument by Caplan (2001) and Caplan & Miller (2010) that higher levels of education yield more liberal economic beliefs. Finally, we account for the effect of demography by adding the log of the population density ( PopDens ) to the model. We anticipate that more populated areas lead to a dynamics that benefits the promotion of more economic freedom.…”