When does Economic Freedom promote Equitable Social Development?

Abstract

Abstract Why do some countries successfully combine economic freedom with equitable social development while others do not? We focus on the sectors of health, education, and social safety as drivers of economic freedom with equitable social development. To capture the latter, we create an index of economic freedom and Gini. Yet, identifying the exact role of government in our focus areas is difficult. Necessary data is either not available or comparable. We therefore suggest focusing on revealed relative policy strengths. This approach rests on the assumption that higher per capita incomes, all else equal, allow for better public health, greater human capital, and improved social safety. When two countries have the same income per capita, but one country performs better in any of our three focus sectors, then, we conclude, the better performing country must have a revealed relative policy strength in that sector. Our findings suggest that countries with greater revealed relative policy strengths in public health, social safety, and human capital are more effective in combining market freedom with equitable social development. In fact, we find that it is the revealed relative policy strengths that drive economic freedom with equitable social development, not the other way around. JEL Classification: D63 Equity, Justice, Inequality, and Other Normative Criteria and Measurement I14 Health and Inequality I24 Education and Inequality O15 Human Resources • Human Development • Income Distribution • Migration