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Measuring Economic Freedom: Better Without Size of Government

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  • Jan Ott

    (Erasmus University Rotterdam)

Abstract

The Heritage Foundation and the Fraser Institute measure economic freedom in nations using indices with ten and five indicators respectively. Eight of the Heritage indicators and four of the Fraser-indicators are about specific types of institutional quality, like rule of law, the protection of property, and the provision of sound money. More of these is considered to denote more economic freedom. Both indices also involve indicators of ‘big government’, or levels of government activities. More of that is seen to denote less economic freedom. Yet, levels of government spending, consumption, and transfers and subsidies appear to correlate positively with the other indicators related to institutional quality, while this correlation is close to zero for the level of taxation as a percentage of GDP. Using government spending, consumption transfers and subsidies as positive indicators is no alternative, because these levels stand for very different government activities, liberal or less liberal. This means that levels of government activities can better be left out as negative or positive indicators. Thus shortened variants of the indices create a better convergent validity in the measurement of economic freedom, and create higher correlations between economic freedom and alternative types of freedom, and between economic freedom and happiness. The higher correlations indicate a better predictive validity, since they are predictable in view of the findings of previous research and theoretical considerations about the relations between types of freedom, and between freedom and happiness.

Suggested Citation

  • Jan Ott, 2018. "Measuring Economic Freedom: Better Without Size of Government," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 135(2), pages 479-498, January.
    • Handle: RePEc:spr:soinre:v:135:y:2018:i:2:d:10.1007_s11205-016-1508-x
    DOI: 10.1007/s11205-016-1508-x
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    References listed on IDEAS

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    1. Helliwell, John F. & Huang, Haifang, 2008. "How's Your Government? International Evidence Linking Good Government and Well-Being," British Journal of Political Science, Cambridge University Press, vol. 38(4), pages 595-619, October.
    2. Jan Ott, 2015. "Impact of Size and Quality of Governments on Happiness: Financial Insecurity as a Key-Problem in Market-Democracies," Journal of Happiness Studies, Springer, vol. 16(6), pages 1639-1647, December.
    3. Radcliff,Benjamin, 2013. "The Political Economy of Human Happiness," Cambridge Books, Cambridge University Press, number 9781107030848.
    4. Christian Bjørnskov & Axel Dreher & Justina Fischer, 2007. "The bigger the better? Evidence of the effect of government size on life satisfaction around the world," Public Choice, Springer, vol. 130(3), pages 267-292, March.
    5. Radcliff,Benjamin, 2013. "The Political Economy of Human Happiness," Cambridge Books, Cambridge University Press, number 9781107644427.
    6. Verme, Paolo, 2009. "Happiness, freedom and control," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 146-161, August.
    7. Jan Ott, 2010. "Good Governance and Happiness in Nations: Technical Quality Precedes Democracy and Quality Beats Size," Journal of Happiness Studies, Springer, vol. 11(3), pages 353-368, June.
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    Cited by:

    1. Marson, Marta & Migheli, Matteo & Saccone, Donatella, 2022. "Free to Die: Economic Freedoms and Influenza Mortality," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202210, University of Turin.
    2. Ryan H. Murphy, 2019. "The long‐run effect of government ideology on economic freedom," Economic Affairs, Wiley Blackwell, vol. 39(1), pages 101-114, February.
    3. Donatella Saccone & Matteo Migheli, 2022. "Free to escape? Economic freedoms, growth and poverty traps," Review of Development Economics, Wiley Blackwell, vol. 26(3), pages 1518-1554, August.
    4. Andreas Bergh & Christian Bjørnskov, 2021. "Does economic freedom boost growth for everyone?," Kyklos, Wiley Blackwell, vol. 74(2), pages 170-186, May.
    5. Vincent Geloso & Kelly Hyde & Ilia Murtazashvili, 2022. "Pandemics, economic freedom, and institutional trade-offs," European Journal of Law and Economics, Springer, vol. 54(1), pages 37-61, August.
    6. Sheila Killian & Philip O'Regan & Ruth Lynch & Martin Laheen & Dionysios Karavidas, 2022. "Regulating havens: The role of hard and soft governance of tax experts in conditions of secrecy and low regulation," Regulation & Governance, John Wiley & Sons, vol. 16(3), pages 722-737, July.
    7. Murphy, Ryan H., 2020. "The Quality of Legal Systems and Property Rights by State: A Ranking and Their Implications for Economic Freedom," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 50(1), April.
    8. Ryan H. Murphy, 2019. "The state economic modernity index: an index of state building, state size and scope, and state economic power," Economics of Governance, Springer, vol. 20(1), pages 73-101, March.
    9. Jan Ott & Fred MacMahon, 2019. "Is Freedom Just About the Absence of Inhibitions, or Also About the Availability of Options?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 142(1), pages 305-309, February.
    10. Pál Czeglédi, 2020. "The consistency of market beliefs as a determinant of economic freedom," Constitutional Political Economy, Springer, vol. 31(2), pages 227-258, June.
    11. Jan Ott, 2022. "Leave Size of Government Out of the Measurement of Economic Freedom—Put Quality of Government In," Econ Journal Watch, Econ Journal Watch, vol. 19(1), pages 1-58–64, March.
    12. Germà Bel, 2022. "Beyond government size: Types of government intervention and corruption," Regulation & Governance, John Wiley & Sons, vol. 16(4), pages 1174-1196, October.
    13. Justin T. Callais & Vincent Geloso, 2023. "Intergenerational income mobility and economic freedom," Southern Economic Journal, John Wiley & Sons, vol. 89(3), pages 732-753, January.
    14. Megan V. Teague & Virgil Henry Storr & Rosemarie Fike, 2020. "Economic freedom and materialism: an empirical analysis," Constitutional Political Economy, Springer, vol. 31(1), pages 1-44, March.
    15. Ryan H. Murphy, 2022. "On Whether the Size of Government Belongs in Economic Freedom Indices," Econ Journal Watch, Econ Journal Watch, vol. 19(1), pages 1-47–57, March.
    16. Rosolino A. Candela & Vincent Geloso, 2021. "Economic freedom, pandemics, and robust political economy," Southern Economic Journal, John Wiley & Sons, vol. 87(4), pages 1250-1266, April.
    17. Ryan H. Murphy, 2022. "Economic Freedom without Quality of Government," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 37(Winter 20), pages 21-42.
    18. Jan Ott, 2022. "Free Markets Require Good Governments, for the Sake of Liberalism," Econ Journal Watch, Econ Journal Watch, vol. 19(2), pages 247–257-2, September.

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