2015 Index of Economic Freedom

Costa Rica

overall score67.2
world rank51
Rule of Law

Property Rights50.0

Freedom From Corruption53.0

Limited Government

Government Spending89.9

Fiscal Freedom80.0

Regulatory Efficiency

Business Freedom64.5

Labor Freedom54.6

Monetary Freedom75.8

Open Markets

Trade Freedom83.8

Investment Freedom70.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 4.8 million
  • GDP (PPP):
    • $61.6 billion
    • 3.5% growth
    • 3.4% 5-year compound annual growth
    • $12,942 per capita
  • Unemployment:
    • 7.7%
  • Inflation (CPI):
    • 5.2%
  • FDI Inflow:
    • $2.7 billion
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Costa Rica’s economic freedom score is 67.2, making its economy the 51st freest in the 2015 Index. Its overall score has increased by 0.3 point from last year, reflecting improvements in labor freedom and freedom from corruption that outweigh a combined decline in monetary freedom, business freedom, and the control of government spending. Costa Rica is ranked 10th out of 29 countries in the South and Central America/Caribbean region, and its overall score is higher than the global and regional averages.

Economic development has focused on orienting the economy to the global marketplace. Costa Rica has one of the highest levels of foreign direct investment in Latin America, and the government’s limited economic presence has facilitated a business environment based on tourism, agriculture, and technology.

The small increase in Costa Rica’s overall score this year has reversed a multi-year decline. Over the past five years, Costa Rica’s economic freedom has declined in four of the 10 factors, including property rights, fiscal freedom, labor freedom, and trade freedom. Changes in the corporate income tax regime to help pay for security services have undermined fiscal freedom.

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Background

Luis Guillermo Solís of the Partido Acción Ciudadana was elected president in 2014, ousting the incumbent Partido Liberación Nacional amid concerns over corruption. The peaceful transfer of power highlighted the long history of democratic stability that has contributed to one of Latin America’s highest levels of foreign direct investment per capita. Nevertheless, many people live in poverty and work in the underground economy. Fiscal and structural reforms to liberalize the economy are long overdue. While Costa Rica remains safer than many of its neighbors, crime rates are rising. There is an ongoing border dispute with Nicaragua. Costa Rica has benefited from foreign investments in electronics and health care, and the Central America–Dominican Republic–United States Free Trade Agreement (CAFTA–DR) has opened insurance and telecommunications to private investors.

Rule of LawView Methodology

Property Rights 50.0 Create a Graph using this measurement

Freedom From Corruption 53.0 Create a Graph using this measurement

Corruption is lower than elsewhere in the region, and Costa Rica has avoided the infiltration of its state institutions by organized crime, but drug-related activity has increased in the past two years as Mexican cartels move into Central America. The judicial branch is independent, but there are often substantial delays in the judicial process. Property rights are secure, and contracts are generally upheld.

Limited GovernmentView Methodology

The top individual income tax rate is 25 percent, and the top corporate tax rate is 30 percent. Other taxes include a general sales tax and a real property tax. The overall tax burden equals 21.9 percent of the domestic economy. Government spending amounts to 18.3 percent of gross domestic product, and public debt is equivalent to around 37 percent of yearly domestic income.

Regulatory EfficiencyView Methodology

The environment for business formation is now more streamlined, but regulatory compliance remains time-consuming. Obtaining necessary permits still takes more than 100 days. The labor market remains relatively flexible, although a modest increase in the minimum wage went into force in July 2013. The government maintains price controls and in 2014 announced a one-year extension of price supports for rice.

Open MarketsView Methodology

Costa Rica’s average tariff rate is 3.1 percent, and the government has upgraded its customs procedures. Domestic and foreign investors are treated similarly, but investment in some sectors of the economy is restricted. The growing financial sector has gradually become more open to competition, but state-owned banks continue to dominate the sector. Capital markets are not fully developed.

Country's Score Over Time

Bar Graph of Costa Rica  Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Chile78.5-0.2
2Colombia71.71.0
3Saint Lucia70.2-0.5
4The Bahamas68.7-1.1
5Uruguay 68.6-0.7
6Saint Vincent and the Grenadines681.0
7Barbados67.9-0.4
8Peru67.70.3
9Jamaica 67.71.0
10Costa Rica 67.20.3
11Dominica66.10.9
12El Salvador 65.7-0.5
13Trinidad and Tobago64.11.4
14Panama 64.10.7
15Paraguay 61.1-0.9
16Dominican Republic61-0.3
17Guatemala 60.4-0.8
18Nicaragua 57.6-0.8
19Honduras 57.40.3
20Belize56.80.1
21Brazil56.6-0.3
22Guyana55.5-0.2
23Suriname54.20.0
24Haiti51.32.4
25Ecuador49.21.2
26Bolivia46.8-1.6
27Argentina44.1-0.5
28Venezuela 34.3-2.0
29Cuba29.60.9
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