DEFINITION of Index of Economic Freedom

An index of economic freedom is a method of scoring and ranking jurisdictions based on the degree of economic freedom – judged by factors such as rule of law, property rights, tax and regulation – their residents enjoy.

BREAKING DOWN Index of Economic Freedom

One major index of economic freedom is published by the Fraser Institute, a Canadian think tank. A second, more prominent, index is produced by the Heritage Foundation, a conservative American think tank, in partnership with the Wall Street Journal.

The Index of Economic Freedom, as the Heritage Foundation's ranking is called, scores countries based on twelve factors: property rights, judicial effectiveness, government integrity, tax burden, government spending, fiscal health, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom and financial freedom. These are compiled into a single score, according to which countries are ranked from most (highest score) to least free.

Hong Kong topped the 2017 ranking with a score of 89.8, followed by Singapore (88.6), New Zealand (83.7), Switzerland (81.5) and Australia (81.0). The U.S. ranked 17th, with a score of 75.1. The country received its weakest scores in the subcategories of fiscal health (53.3) and government spending (55.9), due to high national debt and consistent budget deficits. It scored better in terms of labor freedom (91.0) and trade freedom (87.0). It should be noted that some of these categories are ideologically loaded: what appeals to a laissez-faire economist as a high degree of labor freedom might strike a liberal economist as a lack of worker protection, for example.

The lowest-ranking countries in the Heritage Foundation's 2017 index were North Korea, with a score of 4.9, Venezuela (27.0), Cuba (33.9), Republic of the Congo (40.0) and Eritrea (42.2).