Economic Freedom of North America 2020, Results for Canada, the United States, and Mexico

Economic Freedom of North America 2020 is the sixteenth edition of the Fraser Institute’s annual report. This year it measures the extent to which—in 2018, the year with the most recent available comprehensive data—the policies of individual provinces and states were supportive of economic freedom, the ability of individuals to act in the economic sphere free of undue restrictions. There are two indices: one that examines provincial/state and municipal/local governments only and another that includes federal governments as well. The former, our subnational index, is for comparison of individual jurisdictions within the same country. The latter, our all-government index, is for comparison of jurisdictions in different countries.

For the subnational index, Economic Freedom of North America employs 10 variables for the 92 provincial/state governments in Canada, the United States, and Mexico in three areas: 1. Government Spending; 2. Taxes; and 3. Labor Market Freedom. In the case of the all-government index, we incorporate three additional areas at the federal level from Economic Freedom of the World (EFW): 4. Legal Systems and Property Rights; 5. Sound Money; and 6. Freedom to Trade Internationally; and we expand Area 1 to include government investment (variable 1C in EFW), Area 2 to include top marginal income and payroll tax rate (variable 1Dii in EFW), and Area 3 to include credit market regulation and business regulations (also at the federal level). These additions help capture restrictions on economic freedom that are difficult to measure at the provincial/state and municipal/local level.

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Results for Canada, the United States, and Mexico

The all-government index The all-government index includes data from Economic Freedom of the World (Gwartney, Lawson, Hall, and Murphy, 2020) which is only available on the national level. These data enable us to make better comparisons among Canadian, Mexican, and US subnational jurisdictions by taking into account national policies that affect all jurisdictions within each country. Canada and the United States have similar scores in the EFW report and are both are typically in the top 10 nations. Mexico ranks much lower, at 68th this year, though that is an improvement over past years. The top jurisdiction is New Hampshire at 8.16, followed by Florida and Idaho at 8.10 , then Wyoming (8.09) and Utah (8.08). Alberta is the highest ranking Canadian province, tied for 9th place with a score of 8.06. The next highest Canadian province is British Columbia in 27th at 7.98. Alberta had spent seven years at the top of the index but fell out of the top spot in the 2018 report (reflecting 2016 data). In 2015, Albertans elected new political leaders who made changes in taxation, spending, and regulation that had a negative effect on economic freedom. In 2019, Albertans elected politicians who reversed the course of policy and it will be interesting to see what impact this will have on the province’s level of economic freedom in future years. The highest-ranked Mexican state is Jalisco with 6.70, followed by Tlaxcala (6.66) and Mexico (6.62). They are nearly a full point behind those ranking lowest in Canada and the United States, although that gap has been shrinking. The lowest-ranked state is Ciudad de México at 5.77; slightly better are Colima at 5.95, and Tamaulipas at 6.20. The four lowest-ranked Canadian provinces are all within less than one tenth of a point of each other and are behind all 50 US states. The province of Newfoundland & Labrador and nearby Prince Edward Island are tied for 59th with 7.61, just behind Nova Scotia (58th) at 7.66, and New Brunswick (57th) at 7.67. The lowest-ranked states in the United States are Delaware at 7.72 in 56th place, following Rhode Island (7.76 in 54th) and New York (7.77 in 53rd). Historically, average economic freedom in all three countries peaked in 2004 at 7.70 then fell steadily to 7.21 in 2011. Canadian provinces saw the smallest decline, only 0.20, whereas the decline in the United States was 0.48 and, in Mexico, 0.59. Since then it has risen slowly to 7.40 but still remains below that 2004 peak. However, economic freedom has increased in the United States and Mexico since 2013. In contrast, in Canada, after an increase in 2014, it has fallen back below its 2013 level. See Full Report