2013 Index of Economic Freedom

Costa Rica

overall score67.0
world rank49
Rule of Law

Property Rights50.0

Freedom From Corruption48.0

Limited Government

Government Spending90.1

Fiscal Freedom82.9

Regulatory Efficiency

Business Freedom58.3

Labor Freedom60.4

Monetary Freedom75.4

Open Markets

Trade Freedom85.1

Investment Freedom70.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 4.6 million
  • GDP (PPP):
    • $55.0 billion
    • 4.2% growth
    • 3.7% 5-year compound annual growth
    • $11,927 per capita
  • Unemployment:
    • 7.7%
  • Inflation (CPI):
    • 4.9%
  • FDI Inflow:
    • $2.1 billion
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Costa Rica’s economic freedom score is 67, making its economy the 49th freest in the 2013 Index. Its overall score is 1.0 point lower than last year, reflecting a substantial erosion of property rights, freedom from corruption, and labor freedom. Costa Rica is ranked 8th out of 29 countries in the South and Central America/Caribbean region, and its overall score is higher than the global and regional averages.

The Costa Rican economy has shown a moderate degree of resilience in the face of external challenges, and reform efforts have continued in many areas that are key to improving economic freedom. The overall regulatory framework has become more efficient, and business procedures have been streamlined. Policies that support open markets and a strong private sector are being implemented, enhancing flows of investment and the vitality of entrepreneurship. Relatively prudent public finance management has kept public debt under control.

Costa Rica has lagged, however, in promoting the effective rule of law. The judicial system, while transparent, remains vulnerable to political interference, and property rights are not strongly protected. Lingering corruption further undermines freedom and hampers the emergence of more vibrant economic activity.

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Background

Costa Rica has a strong democratic tradition, but public spending consumes about 20 percent of GDP, and the deficit (hovering at 5 percent of GDP) has not improved economic performance. President Laura Chinchilla tried to raise taxes in 2011 but was thwarted by a grassroots rebellion. Costa Rica is experiencing rising crime, a border dispute with Nicaragua, and an influx of Nicaraguan immigrants. Tourism is vital to the economy. A traditional producer of bananas, pineapples, and coffee, Costa Rica has benefited from foreign investments in electronics and health care, and the Central America–Dominican Republic–United States Free Trade Agreement 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 48.0 Create a Graph using this measurement

Property rights are secure, and contracts are generally upheld. However, the judicial system is slow and complicated. Foreign real estate investors have found it difficult to obtain clear titles. Enforcement of intellectual property rights is often ineffective. The state’s capacity to enforce anti-corruption laws is limited. In 2012, several top officials were accused of influence-peddling and misappropriation of road construction funds.

Limited GovernmentView Methodology

The top 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, however, equals only 13.5 percent of total domestic income. Government spending is equivalent to 18.2 percent of total domestic output. Public debt remains low at 30 percent of GDP, but continuing deficits have prompted structural reforms, particularly in tax administration.

Regulatory EfficiencyView Methodology

The entrepreneurial environment is relatively streamlined, but regulatory compliance can be costly. Obtaining all the necessary permits to operate a business takes 160 days and costs more than the level of average annual income. Labor codes are stringent. Despite some flexibility in work hours, the non-salary cost of labor remains burdensome. Inflationary pressures have eased, but the government maintains price controls.

Open MarketsView Methodology

The trade-weighted average tariff rate is quite low at 2.4 percent, and there are relatively few non-tariff barriers. The investment regime is transparent, with foreign and domestic investors generally treated equally. No restrictions are imposed on the holding of foreign exchange accounts. The growing financial sector has become more open to competition, although three state-owned banks continue to dominate the sector.

Country's Score Over Time

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

Country Comparisons

Bar Graphs comparing Costa Rica  to other economic country groups

Regional Ranking

rank country overall change
1Chile790.7
2Saint Lucia70.4-0.9
3The Bahamas70.12.1
4Uruguay 69.7-0.2
5Colombia69.61.6
6Barbados69.30.3
7Peru68.2-0.5
8Costa Rica 67-1.0
9Jamaica 66.81.7
10El Salvador 66.7-2.0
11Saint Vincent and the Grenadines66.70.2
12Dominica63.92.3
13Panama 62.5-2.7
14Trinidad and Tobago62.3-2.1
15Paraguay 61.1-0.7
16Guatemala 60-0.9
17Dominican Republic59.7-0.5
18Honduras 58.4-0.4
19Brazil57.7-0.2
20Belize57.3-4.6
21Nicaragua 56.6-1.3
22Guyana53.82.5
23Suriname52-0.6
24Haiti48.1-2.6
25Bolivia47.9-2.3
26Ecuador46.9-1.4
27Argentina46.7-1.3
28Venezuela 36.1-2.0
29Cuba28.50.2
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