Do Political Leaders Impact Economic Freedom at the Local Level? Evidence from Close Elections

This paper examines whether state and local political leaders’ partisan affiliations affect economic freedom at the metropolitan statistical area (MSA) level. Because political leaders’ partisan affiliations likely correlate with unobserved state- and local-level characteristics that also affect the economic freedom levels of MSAs, we use a regression discontinuity design that leverages close elections as natural experiments to identify a causal effect. Using Stansel (2019)’s index, which aggregates a bundle of policies into a single measure of economic freedom, we find that close Republican majorities in the lower State House increase overall MSA-level economic freedom. This effect is realized through consistent governments (i.e., Republican governor and Republican State House majority) and primarily through changes in labor market policy. At the city level, Republican mayors also increase overall MSA-level economic freedom levels.