Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2012:10: Does Economic Freedom Foster Tolerance?

Niclas Berggren () and Therese Nilsson ()
Additional contact information
Niclas Berggren: The Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE–102 15 Stockholm, Sweden
Therese Nilsson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: Tolerance has the potential to affect both economic growth and wellbeing. It is therefore important to discern its determinants. We add to the literature by investigating whether the degree to which economic institutions and policies are market-oriented is related to different measures of tolerance. Regression analysis of up to 65 countries reveals that economic freedom is positively related to tolerance towards homosexuals, especially in the longer run, while tolerance towards people of a different race and a willingness to teach kids tolerance are not strongly affected by how free markets are. Stable monetary policy and outcomes is the area of economic freedom most consistently associated with greater tolerance, but the quality of the legal system seems to matter as well. We furthermore find indications of a causal relationship and of social trust playing a role as a mechanism in the relationship between economic freedom and tolerance and as an important catalyst: the more trust in society, the more positive the effect of economic freedom on tolerance.

Keywords: Markets; Economic freedom; Tolerance; Government; Institutions; Regulation

JEL-codes: P10; P48; Z13

54 pages, May 11, 2012

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