Economic freedom and people at risk of poverty in selected Eurozone countries

The fight against poverty is one of the most important future challenges facing the European Commission (and national governments) according to the European Pillar of Social Rights. From a theoretical point of view, mainstream economic theory – based on neoliberal ideas – claims that the objective of poverty reduction can be achieved by increasing the level of economic freedom. The concept of economic freedom is based on the idea of a free-market system and requires two main conditions: i) the economic system must be based on full market competition, and ii) national governments must both minimise their intervention in the economy and implement only policy reforms aimed at increasing private business opportunities. According to the neoliberal economic theory, if these two conditions are satisfied, then economic freedom will be able to generate sustainable economic growth and poverty reduction. This paper investigates whether higher economic freedom and/or lower government intervention in the economy contribute to poverty reduction. Connecting the percentage of people at risk of poverty with the economic freedom index elaborated by the Fraser Institute, and focusing on 12 Eurozone countries in the period between 2000 and 2019, it appears that both higher economic freedom and a lower level of government intervention in the economy (mostly lower spending in government consumption, investment and transfers and subsidies) are associated with an increase in poverty, which stands in contrast to the predictions of neoliberal economic theory.