Institutions Matter: Economic Freedom and Income Mobility

Intergenerational income mobility — the ability of children to rise above their parents’ economic status — is a key concern in debates over inequality and opportunity. Most research has focused on structural factors like social capital, overlooking the role of economic freedom (market-oriented institutions, lower regulation, secure property rights). Using data on U.S. metropolitan areas, we show that higher economic freedom is strongly associated with greater income mobility. Children in high-freedom areas experience 5% to 12% more upward mobility than those in low-freedom areas. Economic freedom and social capital operate independently, suggesting multiple paths to mobility. These results highlight that reforms aimed at expanding economic freedom can directly improve opportunity — a practical lever for policymakers concerned with improving income mobility.