Is there an optimal size for a subnational jurisdiction (think a state or province) if you are looking to maximize economic freedom? Surely bigger is always better, right?
No, as it turns out. A new report from the Fraser Institute analyzes 158 states and provinces across seven countries and uses data from FI’s Economic Freedom of North America report (and other similar reports) to present the first-ever, multi-country, comprehensive examination of the determinants of subnational economic freedom scores.
The results? The optimal population size for increasing economic freedom is 9.5 million, after which diminishing returns and an overall institutional decline in quality set in. This decay starts at even lower population levels for the economic freedom subcategory of taxation, writes author Russell S. Sobel.
“Subnational economic freedom for states and provinces, including in Canada and the U.S., are negatively related with population at levels above a size of roughly 9.5 million people. Economic freedom rises with population initially, attains a maximum (roughly 9.5 million), then begins to decline as population grows larger.”
For cities, Sobel relates that population sizes of up to three million are most conducive to economic growth.
“Simply put, being too large is a disadvantage in terms of achieving high levels of economic freedom,” concludes Sobel.
