American Economic Review

American Economic Review

The American Economic Review is a general-interest economics journal. Established in 1911, the AER is among the nation's oldest and most respected scholarly journals in economics.

Americans continue to lose economic freedom. Following declines in seven of the past eight years, the United States this year has equaled its worst score ever in the Index of Economic Freedom. Ratings for labor freedom, business freedom, and fiscal freedom have flagged notably, and the regulatory burden is increasingly costly.

Economic Freedom Snapshot

• 2016 Economic Freedom Score: 75.4 (down 0.8 points)
• Economic Freedom Status: Mostly Free
• Global Ranking: 11th
• Regional Ranking: 2nd in North America
• Notable Successes: Open Markets
• Concerns: Management of Public Finance and Rule of Law
• Overall Score Change Since 2012: –0.9

The United States remains mired in the ranks of the “mostly free,” the second-tier economic freedom status into which it dropped in 2010. America’s historically vibrant entrepreneurial growth is significantly hampered by intrusive, expensive, and often ineffective government policies in areas ranging from health care to energy to education. Government favoritism toward entrenched interests has hurt innovation and contributed to a lackluster recovery and stagnant income growth.

BACKGROUND

President Barack Obama’s second-term efforts to expand government spending, the scope of the administrative state, and regulation have been stymied to some degree by political opposition in Congress. Yet the U.S. economy continues to underperform despite a private sector–led energy boom that has made the U.S. the world’s largest producer of oil and natural gas. Uncertain responses to foreign policy challenges, particularly concerning the Middle East, have contributed to a loss of support for the President and strong gains for Republicans in Congress and state legislatures. Political tensions related to racial, religious, and social issues have increased over the past year.

RULE OF LAWRULE OF LAW

VIEW METHODOLOGY

Property Rights80.0Create a Graph using this measurement

Freedom From Corruption74.0Create a Graph using this measurement

The American people’s trust in their government is the lowest it has been in the past 10 years, according to three Gallup polls released in 2015, with 75 percent of respondents saying they believe corruption is widespread in the government and in government regulation of business. Although property rights are guaranteed and the judiciary functions independently and predictably, protection of those rights in practice has been uneven.

LIMITED GOVERNMENTLIMITED GOVERNMENT

VIEW METHODOLOGY

Government Spending54.7Create a Graph using this measurement

Fiscal Freedom65.6Create a Graph using this measurement

The top individual income tax rate is 39.6 percent, and in the absence of comprehensive tax reform, the top corporate tax rate remains among the world’s highest at 35 percent. The overall tax burden equals 25.4 percent of total domestic income. Total government spending amounts to about 39 percent of GDP. Frontloading spending increases, the Bipartisan Budget Act of 2015 has not reduced the size or scope of government.