The effects of economic freedom, regulatory quality and taxation on the level of per capita real income: a preliminary analysis for OECD nations and non-G8 OECD nations

Abstract

This study of the impact of economic freedom, regulatory quality and the relative burden of taxation on the <italic>level</italic> of per capita real income/GDP among OECD nations over the period 2003 to 2007 adopts a modified version of the <italic>overall</italic> economic freedom index computed by the Heritage Foundation (2013), one with the fiscal freedom and business freedom indices removed. This study then provides panel least squares fixed-effects estimates for five linear specifications/models. Each nation during this time frame can be regarded either as a nation <italic>per se</italic> or as a <italic>de facto</italic> 'economic region' within the OECD. The analysis first focuses upon all of the OECD nations and then, as a robustness test, subsequently focuses only on non-G8 OECD member nations. The estimations in this study all provide strong empirical support for the three central hypotheses proffered here, namely: (1) the higher the overall degree of economic freedom, the higher the per capita real income (GDP) <italic>level</italic>; (2) the higher the level of regulatory quality, the higher the <italic>level</italic> of per capita real income (GDP) and (3) the higher the overall tax burden, expressed as a per cent of GDP, the lower is the <italic>level</italic> of per capita real income (GDP).