Over the years I have been running ‘Being Classically Liberal,’ I have done a bit of research and come across a number of empirical research papers which I find very interesting and relevant to many current socioeconomic debates. I figured I’d share them here, so that other people can use them as resources. Below, there will be a subject, titled in bold, followed by a number of relevant papers on the matter. Each section will have 3 or so papers that are noted, in my opinion, these are the most important findings on the subject. Enjoy. (I suggest using CTRL-F) as a means to navigate this article, as it most likely will be long.)

Subjects (more to come)

  1. Economic freedom
  2. Free trade
  3. Taxes
  4. Size of government
  5. Deregulation

1. Economic freedom (and economic institutions)

  1. Bennett et al (2015) find that institutions of economic freedom (such as protection of private property rights) are important determinants of economic development. The results are robust to alternative data sets and endogeneity tests using instrumental variables (IV).
  2. Acemoglu and Johnson (2004), in a novel paper, find that private property rights are one of the fundamental determinants of economic development. They address endogeneity using an instrumental variables approach.
  3. Pinkovsky (2013) also finds that private property rights are a fundamental determinant of economic development, using a political discontinuity strategy to address endogeneity.
  • Roland and Gorodnichencko (2010) find that more individualistic cultures have better long-run economic performance. They use an IV approach to tackle the issue of endogeneity.
  • Research published in the Journal of Public Choice finds that higher levels or economic freedom and policy movements towards economic freedom reduce the incidence of human rights violations, even after accounting for endogeneity. These results are in contrast to Marxist assertions that capitalism is generally forced upon people by totalitarian governments.
  • Faria and Montesinos (2009) also find that economic freedom leads to more economic growth, using an IV approach to address endogeneity.
  • Bennett (2015) finds a correlation between economic freedom and an individual’s feeling of feeling more in control of their life.
  • Berggren and Jordahl (2005) find that private property rights promote societal trust (they use IV to address endogeneity.)
  • Compton et al (2013) examines how changes in economic freedom affect after-tax incomes across the income distribution within the United States. In nearly all cases, economic freedom makes most people richer, and at the very least, there is no evidence it makes anyone poorer. They find that an increase in the overall level of economic freedom within a state leads to statistically significant increases in after-tax income for all income quintiles save for the bottom one (the poorest), who see no benefit (but nor is freedom detrimental for them.)
    • Note: They also address endogeneity using System GMM.
  • Babecky (2013) analyzed 60 studies on economic reforms and found that, in general, the evidence indicates that transitioning from a socialist economy to a capitalist/free market economy leads to short-run economic costs which are outweighed by the benefits of more economic growth in the long-term.

2. Free trade

  1. According to a study published by the National Bureau of Economic Research (NBER), countries which embraced freer trade in the 1980’s-1990’s saw an acceleration in their econ growth rates while countries which did not move towards free trade saw economic stagnation. (Results hold even when endogeneity [i.e reverse causality] is addressed using instrumental variables technique.)
  2. World Bank study finds that major trade liberalizations (i.e movement towards free trade) increased economic growth dramatically. These liberalizations were on average preceded by 20 years or so of economic stagnation.
  3. Developing countries with less trade barriers have lower poverty rates, according to a paper by Swedish economists, even after accounting for potential reverse causality (using an instrumental variable technique).
  • Feyrer (2009), in a novel study, finds that international trade has a significant positive effect on per capita income.
  • Less trade restrictions are correlated with happier populations across countries.
  • Salinas and Aksoy (2006) find that trade liberalizations lead to large positive effects on economic growth rates.
  • Research published in the Quarterly Journal of Economics finds that trade strongly benefits the poor by reducing the cost of living. (In the US, 60% of the poor’s purchasing power is derived from trade.)
  • Summarizing the empirical evidence from 2004-2014, economist Alan Winters states, “the conclusion that [trade] liberalisation generally boosts income and thus reduces poverty has not changed.”
  • Im and McLaren (2015) find that, after addressing endogeneity, foreign investment in developing countries reduces both poverty and inequality. (Damn those evil corporations!)
  • Heath and Mobarak (2015) find that growth in garment industry (i.e sweatshops) in Bangladesh allowed women to finance their education, increasing their educational attainment.
  • Free trade and Mexico
    • Globalization reduced poverty in Mexico, according to NBER paper.
    • Introduction of foreign retailers in Mexico lead to more inequality, but also made all households, including the poorest, better off by reducing the cost of living, according to research from the Center for Economic Performance.
    • Import tariff reductions in Mexico lead to 3 million people being pulled out of poverty by reducing cost of living, according to World Bank research.
  • Free trade and China
    • The US has gained, as a whole, from trade with China, according to St. Louis Federal Reserve research.
    • China trade liberalization lead to less pollution, according to NBER paper.
    • Chinese trade integration lead to lead to less pollution.
    • Access to domestic and foreign markets lead to large increases in consumption for Chinese families.
  • Free trade and developing countries
    • “Eliminating existing developed world tariffs would increase developing country trade to GDP ratios by one third and growth rates by 0.6 to 1.6 percent per annum.” NBER paper
    • Vietnam trade liberalization lead to move out of agriculture into manufacturing, according to Dartmouth economists.
    • Import tariff reductions increase economic growth in India, according to Dartmouth research.
    • Import tariff reductions reduce poverty in India by reducing the cost of living, according to paper in the Journal of Development Economics.
    • Lower US barriers to trade with Vietnam lead to poverty reduction in Vietnam.
    • Paper published in The World Economy finds that Vietnam’s movement towards free trade lead to poverty reduction.
    • Import tariff reduction lead to poverty reduction in Indonesia, according to Karos and Sparrow (2013).

3. Taxes

  1. In a novel study examining the causal impact of taxes on economic growth, Romer and Romer (2010) find that a tax increase equivalent to 1% of GDP reduces GDP by 3%.
  2. Snolyansky and Ljungqvist (2015) find that, at the state level, corporate tax increases reduce income and employment, using a political discontinuity approach in order to account for endogeneity.
  3. Mertens and Ravn (2012) find that higher income taxes and corporate taxes reduce economic growth and increase unemployment using a Romer-style methodology.
  • Furceri and Karras (2012) find that, in developed countries, “the effect of an increase in taxes on real GDP per capita is negative and persistent: an increase in the total tax rate (measures as the total tax ratio to GDP) by 1% of GDP has a long-run effect on real GDP per capita of –0.5% to –1%.” Results held even after accounting for endogeneity.
  • Mukherjee et al (2015) find that corporate taxes reduce innovation, measured as patenting, R&D spending, and new product introductions, at the state level, using a political discontinuity approach to tackle endogeneity.
  • Morreti and Wilson (2015) find that, at the state level, higher income and corporate taxes cause top scientists to move out of a state.
  • Alloza (2016) finds that higher marginal income taxes reduce economic mobility, especially among the poor. In other words, higher taxes reduce economic opportunity.
  • Djankvov et al (2012) find that countries with higher corporate tax rates attract less foreign investment and have less entrepreneurship and lower levels of aggregate investment. It’s unlikely the results are biased by endogeneity since there is no reason to expect less investment to cause higher tax rates (or less entrepreneurship to cause higher tax rates.)
  • Kaymak and Poshcke (2015) find that, contrary to popular belief, tax rate reductions among top earners during the last few decades in the US only had a negligible impact on income inequality.

4. Size of government 

  1. After accounting for endogeneity using an instrumental variable approach, Pitlik (2013) finds that, among developed nations, bigger government size causes lower happiness among the population.
  2. Bergh and Henrekson (2011), in a review of the empirical evidence, find that most studies find that countries with larger governments have considerably lower economic growth rates.
  3. Behar and Mok (2013) find that, “high rates of public employment, which incur substantial fiscal costs, have a large negative impact on private employment rates and do not reduce overall unemployment rates.” (Yes, they account for endogeneity.)
  • University of Delaware’s Department of Economics found that “positive shocks to government outlays slow down economic growth and raise the unemployment rate.”
  • Feldmann (2006) finds that a larger government sector corresponds to higher unemployment rates across countries, even after accounting for the state of the business cycle. Yongjin (2011) comes to a similar conclusion.
  • Article summarizing research.
  • A novel paper, Christie (2012) found that government spending is detrimental to economic growth after it exceeds around 30% of GDP, after accounting for endogeneity. In most developed countries, government spending exceeds 40% of GDP.

5. Regulation

  1. Subramanian and Yadav (2012) find that banking deregulation that increased competition across state lines lead to increased banking stability. There was also no evidence of reverse causality.
  2. Dawson and Seater (2013) come to a stunning conclusion: “Federal regulations added over the past fifty years have reduced real output growth by about two percentage points on average over the period 1949-2005. That reduction in the growth rate has led to an accumulated reduction in GDP of about $38.8 trillion as of the end of 2011. That is, GDP at the end of 2011 would have been $53.9 trillion instead of $15.1 trillion if regulation had remained at its 1949 level.” (They used Granger-causality tests to guard against endogeneity.)
  3. Levine et al (2012) find that bank deregulation in America from the 1970’s-1990’s that facilitated the entrance of new firms lead to an increased competitive business environment, reducing discrimination against blacks. (They found no evidence of endogeneity.)
  • Beck et al (2009) find that removing restrictions on interstate banking reduced income inequality by increasing the relative (and absolute) wage rates and working hours of low-skilled workers. (Again, no evidence of endogeneity.)
  • Feldmann (2007) finds that banking deregulation leads to “substantially decreased unemployment, particularly among young people” across countries. The results held even when endogeneity was addressed.
  • Across the world, government ownership of banks causes lower levels of innovation, according to Xiao and Zhao (2012).