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Government Spending and Taxes Tend to Rise as Province and State Populations Exceed 9.5 million; Implications for Ontario, California, And New York

New research released today by the Fraser Institute, a non-partisan Canadian public policy think tank, finds that provinces and states with populations greater than 9.5 million people, such as Ontario, California, and New York, have higher levels of government spending as well as higher taxes and less flexible labor markets.

“High levels of prosperity, economic growth, and overall well-being are associated with government spending and taxes, as well as labor market flexibility, or what has been referred to as economic freedom,” said Professor Russell Sobel, senior fellow at the Fraser Institute and author of The Determinants of Subnational Economic Freedom.

It uses data from the Fraser Institute’s Economic Freedom of North America report (and other reports modeled after it) to determine the optimal population size for states and provinces (subnational jurisdictions), in order to maximize economic freedom. The study looks at 158 states and provinces across seven countries.

According to the findings of the study, subnational economic independence for states and provinces, including those in Canada and the United States, is inversely associated to population levels greater than around 9.5 million people. Economic freedom rises initially with population, reaches a maximum (about 9.5 million), and then begins to diminish as the population continues to increase.

“To put it another way, being too huge is a disadvantage when it comes to reaching high levels of economic freedom,” Sobel explained. ”

In terms of their ability to maintain fair levels of government expenditure and taxation, states and provinces with populations currently above 9.5 million, as well as those subnational authorities experiencing population expansion, would be adversely affected.

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