The
Economic Freedom
Network

Provincial Economic Freedom in Canada 1981-1998

by Faisal Arman, Dexter Samida, and Michael Walker

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Economic Freedom Analysis of the Provinces

Prince Edward Island

Prince Edward Island is currently the third freest province in Canada. Since 1989, this province has had a slow but steady growth in its economic freedom ratings. Although modest, this province's increases in economic freedom vis-à-vis the other provinces placed it in third position in 1994. The government was able to maintain this position in the 1998 estimate.

Prince Edward Island produced marginal improvements in several sectors. The government reduced transfers and subsidies as a percentage of GDP from 6.8 percent in 1994 to 6.2 percent in 1995. In 1995, Prince Edward Island had the fourth smallest transfer and subsidy sector, behind Nova Scotia (5.2 percent), Alberta (5.5 percent) and Ontario (5.6 percent). From 1994 to 1995, PEI had the second lowest top marginal tax rate, 50.3 percent, following Alberta (46.1 percent). Also, in the same period Prince Edward Island's annual minimum-wage income as a ratio of per-capita GDP declined, increasing its rating relative to the other provinces.

Prince Edward Island continues to have a large government consumption sector and an increasing government business enterprise sector. Furthermore, the number of occupations that fall under the regulatory umbrella have increased from 34 in 1981 to 46 in 1997. In 1981, the average number of regulated occupations was 43, falling to 41 by 1997.

Over the measurement period, Government Operations and Regulations relative to the other provinces have declined significantly. This trend, combined with the lack of relative improvement in Interprovincial Trade, may prove troublesome. With changes in these policy areas, Prince Edward Island may retain its ranking and, perhaps, improve it. There could be significant gains to be had if this province could reach the level of economic freedom found in Alberta. Raising economic freedom by this amount could raise per-capita GDP between $5,600 and $6,300.

Prince Edward Island:Ranking for Components of the Index of Provincial Economic Freedom

	1981	1985	1989	1993	1994	1995	1998 (est.)
I.Government Operations and Regulations	8	8	(tie) 8	6	(tie) 5	5	5
II.Takings and Discriminatory Taxation	5	5	6	4	2	2	2
III.Interprovincial Trade	2	2	4	4	4	4	4
IV.Regulation of the Labour Market	(tie) 9	10	10	(tie) 8	(tie) 9	(tie) 5	(tie) 5

Part 1: Economic Freedom Ratings for the Components and Various Area and Summary Indexes: 1981, 1985, 1989, 1993, 1994, 1995, 1998 estimate.

	IPEF	Ranking
1981	4.5	6
1985	4.5	6
1989	4.8	7
1993	4.7	4
1994	5.0	3
1995	5.3	3
1998	5.4	3
			IPEF (1998 est.):		5.3	Trend:	Increasing

Components of Economic Freedom
			1981	1985	1989	1993	1994	1995	1998 est.
I. Government Operations and Regulations			3.7	3.9	3.9	3.9	4.2	4.7	4.9

(a) Consumption Expenditures (% of GDP)			0.0	1.0	1.0	1.0	2.0	3.0	4.0
(b) Government Enterprises and Guarantees			10.0	10.0	10.0	10.0	10.0	10.0	10.0
(c) Price Controls			6.0	6.0	6.0	6.0	6.0	6.0	6.0
(d) Regulatory Effort			0.0	0.0	0.0	0.0	0.0	1.0	1.0

II. Takings and Discriminatory Taxation			4.9	4.9	5.1	4.8	5.3	5.5	5.5

(a) Transfers and Subsidies (% of GDP)			7.0	6.0	6.0	6.0	6.0	7.0	7.0
(b) Top Marginal Tax Rate and Threshold			3.0	2.0	6.0	5.0	5.0	5.0	5.0
(c) Direct Corporate Taxes (% of profits)			8.0	10.0	6.0	6.0	8.0	8.0	8.0
(d) Provincial Sales Tax			2.0	2.0	2.0	2.0	2.0	2.0	2.0

III. Interprovincial Trade			6.5	6.3	6.0	5.8	5.7	5.6	5.6

(a) Occupational Licensing			6.0	5.5	4.9	4.4	4.3	4.1	4.0
(b) Marketing Boards			7.0	7.0	7.0	7.0	7.0	7.0	7.0

IV. Regulation of the Labour Market			0.0	1.0	4.0	5.0	5.0	6.0	6.0

(a) Minimum Wage Legislation			0.0	1.0	4.0	5.0	5.0	6.0	6.0

Economic Freedom Rating			4.5	4.5	4.8	4.7	5.0	5.3	5.4
Ranking of Province			6	6	7	4	3	3	3

Components of Economic Freedom

I. Government Operations and Regulation
	1981	1985	1989	1993	1994	1995	1996	1997
(a) Consumption Expenditures (% of GDP)	32.2	31.8	30.3	30.5	28.9	27.2	24.8	—
(b) Government Enterprises & Guarantees	4.9	8.8	7.7	6.8	8.8	—	—	—
(c) Price Controls	Price controls are often applied in energy markets; marketing boards often influence prices of agricultural products; controls are also present in a few other areas, but most prices are determined by market forces
(d) Regulatory Effort	0.417	—	0.403	—	—	0.421	0.378	—

II. Takings and Discriminatory Taxation
(a) Transfers and Subsidies (% of GDP)	6.0	6.9	7.0	6.7	6.8	6.2	—	—
(b) Top Marginal Tax Rate and	51.9	53.6	48.8	50.3	50.3	50.3	50.3	50.3
Threshold at Which It Applies	$53,337	$62,161	$94,223	$92,655	$92,734	$92,777	$92,777	$63,409
(c) Direct Corporate Taxes (% of profits)	25%	22%	28%	30%	25%	26%	26%	26%
(d) Provincial Sales Tax	10.0	10.0	10.0	10.0	10.0	10.0	10.0	10.0

III. Interprovincial Trade
(a) Occupational Licensing	34.0	—	—	—	—	—	—	46.0
(b) Marketing Boards	15.4	18.4	16.5	19.1	15.5	16.3	18.5	—

IV. Regulation of the Labour Market
(a) Minimum Wage Legislation	81.9	75.2	61.6	54.3	53.8	51.5	53.2	—

Click Here to View Key to Areas and Components of the Index and the Weights Assigned to Each

Prince Edward Island:Recent Economic Indicators
Population 1996 (in thousands):137 Average annual rate of change 1985–1996:0.8 percent
Real per-capita GDP 1996: $14,453 Average rate of economic growth 1985–1990:1.7 percent; 1991–1996:1.8 percent

	1981	1982	1983	1984	1985	1986	1987	1988	1989	1990	1991	1992	1993	1994	1995	1996
Annual change (%) in population		0	0	2	1	1	0	1	1	0	0	1	1	2	1	1
Annual change (%) in real GDP		-0.1	11.1	2.5	-0.2	2.0	2.6	4.8	2.8	0.9	1.2	2.3	1.3	5.0	3.9	2.4
Annual change (%) in real GDP (average of other provinces)		-3.3	4.0	6.0	4.5	3.6	4.2	5.0	2.4	-0.2	-1.8	0.8	2.3	4.1	2.3	1.5
Annual change (%) in real per-capita GDP		-0.1	9.3	1.7	-0.1	1.2	2.6	4.0	2.0	0.9	1.2	1.5	0.5	3.5	3.2	1.7
Annual change (%) in real per-capita GDP (average of other provinces)		-3.4	2.4	4.2	3.7	2.0	2.7	2.6	1.4	0.2	-1.8	-0.6	1.6	2.8	0.9
Ratio of business investment to GDP (%)	13	14	15	14	15	16	17	17	17	16	17	12	13	18	18	17
General government budget deficit (-) or surplus (+) (% of GDP)	-2	+3	-1	+3	+2	+2	+1	+2	+2	+1	0	0	-2	1	3
Unemployment rate (%)	11.4	13	12.6	13	13.5	13.6	13.3	13	14.2	15.1	17.1	18.1	18.3	17.2	14.9	14.7

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