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June 29, 2005

Study: New York ranks low on 'economic freedom' index

New York State is among the least economically free areas in North America, according to a new report by the National Center for Policy Analysis (NCPA) and the Fraser Institute of Canada.

The report, Economic Freedom of North America, measured the economic freedom of all fifty states and 10 Canadian provinces in “an attempt to gauge the extent of the restrictions on economic freedom imposed by governments in North America.”

The report found that the Empire State had low economic freedom in all three of the major areas studied: size of government; “takings and discriminatory taxation;” and labor market freedom.

All states and the Canadian Provinces were ranked on two separate indexes. The first index, which measured restriction on economic freedom by all government levels, ranked New York at number 40 with an overall score of 6.2. The highest ranking state, Delaware, had a score of 8.2.

The study also measured economic freedom restrictions at a sub-national level by studying restrictions put in place by state, provincial and local governments. New York’s performance was even lower on this index, ranking 49 with a score of 4.9— lower than two Canadian provinces, Alberta and Ontario, and higher than only Rhode Island and West Virginia.

The study indicated a direct correlation between a state's economic freedom score and per capita income. "At an all-government level, holding other variables constant, an increase of one point in economic freedom in a U.S. state will increase that state’s per-capita income by US$5,907," the report said.

New York's economic "sluggishness" could be attributed to a higher-than-average tax burden. “The Empire State’s 12.9 percent state and local tax burden is the nation’s highest and, when the federal tax burden is added, only Connecticut’s citizens pay more."

The study said that the freest economies operated with little government interference, “ relying upon personal choice and markets to answer the basic economic questions such as what is to be produced, how it is to be produced, how much is produced, and for whom production is intended.
As government imposes restrictions on these choices, the level of economic freedom declines.”

The study is available in PDF format at www.ncpa.org/email/20050620efna.pdf.