2017 Index of Economic Freedom

Costa Rica

overall score65.0
world rank63
Rule of Law

Property Rights51.6

Government Integrity55.4

Judicial Effectiveness55.6

Government Size

Government Spending88.5

Tax Burden79.4

Fiscal Health42.4

Regulatory Efficiency

Business Freedom68.1

Labor Freedom53.9

Monetary Freedom80.8

Open Markets

Trade Freedom84.7

Investment Freedom70.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 4.8 million
  • GDP (PPP):
    • $74.9 billion
    • 3.7% growth
    • 3.6% 5-year compound annual growth
    • $15,482 per capita
  • Unemployment:
    • 8.6%
  • Inflation (CPI):
    • 0.8%
  • FDI Inflow:
    • $2.8 billion
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Costa Rica’s economic fundamentals, including macroeconomic stability and openness to global trade and finance, remain relatively strong. The economy has expanded by an average of approximately 3.5 percent annually over the past five years. Recent reforms have focused on regulatory improvements and fostering a stronger private sector.

However, deeper institutional reforms are needed. Excessive government bureaucracy continues to discourage dynamic entrepreneurial activity, and the pace of privatization and fiscal reform has slowed. Widening budget deficits have put public debt on an upward trend. The judicial system, while transparent and not corrupt, remains inefficient.

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Background

The most prosperous of the five countries in the Central American Common Market, Costa Rica has a long history of democratic stability and enjoys one of Latin America’s highest levels of foreign direct investment per capita. Luis Guillermo Solís of the center-left Partido Acción Ciudadana began his four-year term as president in 2014. A fractious legislature complicates policymaking because the PAC holds the fewest seats of any ruling party in Costa Rican history. Costa Rica has a long-standing border dispute with Nicaragua that is related to the San Juan River. Traditional agricultural exports of bananas, coffee, and sugar are still the backbone of the country’s commodity-driven export economy, and high-value-added goods and services have further bolstered exports.

Rule of LawView Methodology

Property Rights 51.6 Create a Graph using this measurement

Government Integrity 55.4 Create a Graph using this measurement

Judicial Effectiveness 55.6 Create a Graph using this measurement

Property rights are secure, and contracts are generally upheld, although they are sometimes difficult to enforce. The judicial branch is independent, but its processes are often slow. Despite ongoing efforts to combat drug trafficking, the country’s fiscal challenges threaten to undermine the security and justice sectors. A complex bureaucracy slows the pace of capacity-building, and corruption remains a nagging issue.

Government SizeView Methodology

The top personal 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 23.1 percent of total domestic income. Government spending has amounted to 19.6 percent of total output (GDP) over the past three years, and budget deficits have averaged 5.8 percent of GDP. Public debt is equivalent to 42.4 percent of GDP.

Regulatory EfficiencyView Methodology

The overall business framework does not adequately support entrepreneurial activity. Licensing requirements have been reduced, but procedures for launching a business remain cumbersome. The nonsalary cost of employing a worker remains high. To fulfill its commitment to forswear the use of fossil fuels, the government subsidizes the cost to consumers of hydroelectric power generated by the state-owned electric utility.

Open MarketsView Methodology

Trade is important to Costa Rica’s economy; the value of exports and imports taken together equals 72 percent of GDP. The average applied tariff rate is 2.7 percent. The government restricts investment in some sectors of the economy. The growing financial sector functions relatively well. Banking remains dominated by state-owned institutions, but they have given up a considerable portion of the market to private-sector banks.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Canada78.50.5
2Chile76.5-1.2
3United States75.1-0.3
4Colombia69.7-1.1
5Uruguay 69.70.9
6Jamaica 69.52.0
7Peru68.91.5
8Panama 66.31.5
9Saint Vincent and the Grenadines65.2-3.6
10Saint Lucia65-5.0
11Costa Rica 65-2.4
12El Salvador 64.1-1.0
13Dominica63.7-3.3
14Mexico63.6-1.6
15Guatemala 631.2
16Dominican Republic62.91.9
17Paraguay 62.40.9
18Trinidad and Tobago61.2-1.7
19The Bahamas61.1-9.8
20Nicaragua 59.20.6
21Honduras 58.81.1
22Belize58.61.2
23Guyana58.53.1
24Barbados54.5-13.8
25Brazil52.9-3.6
26Argentina50.46.6
27Haiti49.6-1.7
28Ecuador49.30.7
29Suriname48-5.8
30Bolivia47.70.3
31Cuba33.94.1
32Venezuela 27-6.7
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