Improving Arkansas’ Economic Freedom (Jeremy Horpedahl & Heidi Saliba Commentary)

Arkansas 2021 Economic Freedom Rank Compared to Neighboring States

The 2023 edition of the “Economic Freedom of North America” (EFNA) report shows that Arkansas has improved some aspects of its economic freedom in recent years but has simultaneously fallen two places overall. While there is much to do, none of it is unattainable.

At the Arkansas Center for Research in Economics (ACRE), we use the data in this report to better understand the role of economics in the everyday lives of Arkansans, as well as opportunities to improve upon the ability to pursue our dreams as Americans.

The latest EFNA report covers state-level data points for 2021, which show that Arkansas ranked 29th out of 50 states. This means we lagged more than half the states in terms of taxation, occupational regulation and government spending. Compared with 2020, Arkansas improved its rank in taxation but declined in government spending and labor market freedom.

Texas, Tennessee and Oklahoma earned spots in the top quarter of states. What sets them apart? Texas and Tennessee benefit from having no state personal income tax, while Oklahoma enjoys ranking among the top 20 for all three areas, even with an income tax. In contrast, our state was not in the top 20 for any single area.

Arkansas is uniquely poised to rise to the challenges identified before us. Being in the bottom half of an economic freedom index and simultaneously having a billion-dollar budget surplus last fiscal year points to the appropriateness of continuing to lower the state’s income taxes, with a plan for responsible deregulation in doing so.

The 2023 publication “The Future of Arkansas Tax Reform,” (co-published with the Tax Foundation) noted that the state’s individual income tax collections have steadily risen since 1950. In a 2016 publication, I (Horpedahl) also noted that “Arkansas has some of the highest personal and corporate income tax rates in the region,” though thanks to several rounds of tax reforms since then, rates have come down significantly.

Tax reform on its own is not enough, however: Government spending, property rights and freedom of information are also at the core of economic freedom. The EFNA authors note that the index indicates “higher levels of economic freedom to be correlated with positive outcomes, such as economic growth, lower unemployment, reduced poverty, and so on.”

Their results point to the broader philosophies that drive our passion at ACRE for studying economics at the local, state and regional levels. EFNA data allow us to answer questions at the state and local levels regarding implications of policy changes and their effects on the economic well-being of Arkansans. In other words, we have the opportunity to discern the right courses of actions, at the right times and for the right reasons, so that all of Arkansas may succeed.

Jeremy Horpedahl is an associate professor of economics at the University of Central Arkansas and the director of the Arkansas Center for Research in Economics at UCA. Heidi Saliba is a policy analyst at the Arkansas Center for Research in Economics.