At least that’s what Reason‘s science writer Ronald Bailey has concluded based on various studies. “For example,” Bailey writes,
according to a study comparing outcomes in all U.S. states in the January 2014 issue of Contemporary Economic Policy by Illinois State University economist Oguzhan Dincer and his colleagues finds that reducing economic freedom actually tends to increase inequality. “On average, as the size and scope of government increases, so does income inequality,” Dincer tells Reason.
The authors go on to establish “Granger causality.” Simplistically stated, this means they show a causal feedback loop, in which economic intervention produces economic inequality, which in turn leads to more economic intervention. Politicians often react to rising inequality with policies that, on average, end up making inequality worse—say, by increasing the minimum wage. (That is not to say that some policies, such as raising the top marginal tax rate, could decrease inequality. But taken as a whole, the effect moves in the other direction.)
…A 2013 study in The Journal of Regional Analysis and Policy by economists at Ohio University and Florida State University bolsters Dincer’s findings. That study, also using Fraser state economic freedom index data, identified a Kuznets curve relationship between increasing economic freedom and trends in income inequality.Their analysis “suggests that beginning from a low level of economic freedom, increases initially generate more inequality as the upper part of the income distribution benefits relatively more than the lower part; however, as enhancements of economic freedom continue, this reverses and the lower part of the distribution experiences larger relative income gains.”
In their study, Dincer and his colleagues report that their results “support previous studies which find a positive relationship between economic freedom and per capita income.” Last November, a National Bureau of Economic Research study by the Mississippi State University economist Travis Wiseman found, all things being equal, that a one-point increase on the Fraser Economic Freedom of North America index is associated with about an $8,156 increase in real average market incomes.
Check out the whole article and the studies in full.