Impact of Economic Freedom, Regulatory Quality, and Taxation on the Per Capita Real Income: An Analysis for OECD Nations and Non-G8 OECD Nations

This study of the impacts of economic freedom, regulatory quality, and the relative burden of taxation on the level of per capita real income/GDP among OECD nations over the 2003-2007 period adopts a modified version of the overall economic freedom index computed by The Heritage Foundation (2013), one with the fiscal freedom and business freedom indices removed. This study then provides PLS fixed effects estimates for five linear specifications/models. Each nation during this time frame can be regarded either as a nation per se or as a de facto “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) level; (2) the higher the level of regulatory quality, the higher the level of per capita real income (GDP); and (3) the higher the overall tax burden, expressed as a percent of GDP, the lower the level of per capita real income (GDP).