A Rising Tide that Lifts All Boats: An Analysis of Economic Freedom and Inequality using Matching Methods
88 Pages Posted: 19 Apr 2022 Last revised: 5 Dec 2022
Date Written: April 13, 2022
Abstract
We explore the relationship between economic freedom and inequality. We employ the Fraser Institute’s Economic Freedom of the World (EFW) index and country-level (i) decile income shares, (ii) decile income levels, and (iii) Gini coefficients. We address concerns for endogeneity and nonlinearity using matching methods. We report that economic freedom is a tide that raises boats at all income levels. We also report that increases in economic freedom cause increases in income inequality. While those increases are associated with gains in the top income decile, they are modest. We conclude that increased economic freedom leads to significant gains across the income distribution.
Keywords: economic freedom, income deciles, inequality, matching methods, causal inference, institutional economics
JEL Classification: D63, P00, P16, P48
Suggested Citation: Suggested Citation