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Happy Countries Enjoy Economic Freedom

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The world just celebrated the International Day of Happiness on March 20—although in places like Haiti, Syria, and Burundi, all near the bottom of the World Happiness Report ranking released a week earlier, there is admittedly less to celebrate. What makes such places relatively miserable, while countries like Canada (in 7th place) are relatively happy? My first thought was that happy countries are economically free countries.

The Fraser Institute’s Economic Freedom of the World (EFW) report measures the degree of economic freedom in five broad areas, namely: size of government, legal system/property rights, sound money, freedom to trade internationally, and regulation. A quick glance at the 2017 EFW report confirmed my suspicion. Of the 20 happiest countries, all but two (Belgium and Iceland) are in the most economically free quartile. New Zealand, Switzerland, and Australia are in the top ten in both rankings. (Canada just fell out of the top ten most economically free countries in the latest annual report, and now ranks 11th.)

Of course, economic freedom is not the only important factor. The World Happiness Report itself identifies six predictors that help explain a country’s average happiness: GDP per capita, social support, healthy life expectancy, freedom to make life choices, generosity, and perceptions of corruption. But several of these factors are themselves related to a country’s level of economic freedom.

Most obviously, the freedom to make life choices—which is based on responses to the question «Are you satisfied or dissatisfied with your freedom to choose what you do with your life?»—depends heavily on economic freedom. Think about it: If the government taxes away half your income, fails to protect your property rights, inflates away the purchasing power of your savings, prevents you from buying and selling across the border, and micromanages various aspects of your life through regulation, it thereby considerably restricts your freedom to make life choices.

When it comes to GDP per capita, another of the six predictors, it’s clear that individuals living in places with more economic freedom tend to have substantially higher average incomes. In the latest EFW report, the most economically free 25% of nations had an average per capita GDP of over $42,000 in 2015, compared to around $6,000 for nations in the least free quartile (adjusted for purchasing power parity).

Moreover, these material benefits of economic freedom are widespread within a country. The poorest 10% who live in the freest countries enjoy average incomes of almost $12,000, compared to just over $1,000 for the least free quartile. Clearly, the poor living in a country with a decent amount of economic freedom are much better off than those living in a country that is less free.

Beyond basic material well-being, life expectancy is also positively correlated with economic freedom. Again according to the latest EFW report, individuals born today in the most economically free countries in the world can expect to live on average 80.7 years, which is over 16 years longer than those born in the least free quartile of countries.

Indeed, the EFW report explicitly compares its measure of economic freedom with the World Happiness Index, and finds a clear correlation. The least free quartile of countries had an average happiness score of 4.61 on that index, compared to an average of 6.70 for the freest quartile.

Even in the freest countries, there’s always room for improvement. But I have to say, I’m pretty happy to be living in a country like Canada, with a relatively high degree of economic freedom.

Jasmin Guénette est vice-président aux opérations de l’Institut économique de Montréal. Il signe ce texte à titre personnel.

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