Economic Freedom, Migration and Income Change among U.S. Metropolitan Areas

Abstract

Even though metropolitan area governments have no control over state level monetary, labor, or fiscal policies, they are able to enact policies designed to enhance local living conditions-however determined. Such policies include local taxes, labor and wage policies, and regulations that can differ substantially from other metropolitan areas even within the same state. Collectively such policies create differing levels of economic freedom, as measured by standardized indices. We examine differences in levels of economic freedom across United States metropolitan areas and explore how these differences affect migration patterns and local aggregate and per capita income changes. We find that those metropolitan areas with higher levels of economic freedom tend to experience net in-migration and positive changes in aggregate and per capita income, although the balance between in-state and out-of-state migration confounds these patterns. KeywordsEconomic Freedom, Migration, Income Change, U.S. Metropolitan Regions IntroductionOn January 1, 2016, the billionaire head of Appalossa Management, David Tepper, moved his headquarters and personal residence from New Jersey to Florida.What is interesting about this move is that it was immediately noticed by the New Jersey Office of Legislative Services, which reported that the state will be feeling the impact of this one move on their income-tax forecast (Dopp, 2016). This anecdote suggests that the quality of institutions (e.g. local government polies such as individual and corporate income tax rates) matters in how it affects individuals, businesses, and the ability of local governments to enact and carry-out particular policy decisions. At a global level, there is compelling evidence that good institutions-particularly private property, rule-of-law, freedom of entry and exit into occupations, and freedom to trade-create conditions that foster economic growth and improvements in the quality-of-life (Galor, 2011).Current research provides evidence that countries with lower capital and wage tax rates, fewer barriers of entry into markets, and rule of law, along with political stability and good governance, tend to have higher rates of economic growth, employment and entrepreneurship (Goldsmith, 1995;Ali, 1997;Farr et al., 1998;Ayal & Karras, 1998 Our goal in this paper is to explore how varying levels of government control affect the size and direction of migration and income among metropolitan areas within the United States-a federal state that contains multiple levels of governments. In particular, we investigate the impact of local government policy on revealed locational preferences using Tiebout's (1956) "vote with their feet" J. M. Shumway

Economic freedom and one‐way truck rental prices: An empirical note

“…Shumway (2018) and Arif et al (2020) looked at migration and economic freedom at the city level. They both found that locales with higher economic freedom experience economically and statistically significant increases in domestic in‐migration.…”

“…Mulholland and Hernández-Julián (2013) report that states with higher economic freedom were attractive to migrants with secondary education and to a lesser degree those with some college. Shumway (2018) and Arif et al (2020) looked at migration and economic freedom at the city level. They both found that locales with higher economic freedom experience economically and statistically significant increases in domestic in-migration.…”

Local Governments and Economic Freedom: A Test of the Leviathan Hypothesis

“… 8. Examples of other work using the metropolitan statistical areas (MSA) index include Bologna, Young, and Lacombe (2016); Pavlik (2015); Koch (2015); Wong and Stansel (2016); and Shumway (2017). …”