As a contractor / freelancer, you shouldn't be willing to lower your rates based on where you live. As an employee, you should only be willing to do this as some sort of negotiation in place of losing your job. Company: To keep your job you need to take a pay cut. You: I will take a pay cut if you allow me to work remotely and live wherever I like.
A given company shouldn't pay you less for working from home unless it actually reduces your usefulness to them, in which case they're perfectly entitled to propose a cut and hope that doesn't demotivate you too much. If that means two more free hours a day, a better lifestyle and/or lower costs of living then you're still quite possibly better off worth negotiating that pay cut.
Realistically, for most people absolute freedom to work where they want probably means leaving their existing job and having much more restricted choice of jobs or companies looking to contract out, which unless you're presently underpaid will probably to lead to lower offers .
