2020 Index of Economic Freedom

Costa Rica

OVERALL SCORE65.8
WORLD RANK68
Rule of Law

Property Rights66.7

Judicial Effectiveness54.4

Government Integrity57.2

Government Size

Tax Burden78.9

Government Spending88.4

Fiscal Health39.7

Regulatory Efficiency

Business Freedom66.5

Labor Freedom55.0

Monetary Freedom81.2

Open Markets

Trade Freedom81.4

Investment Freedom70.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 5.0 million
  • GDP (PPP):
    • $88.2 billion
    • 2.7% growth
    • 3.5% 5-year compound annual growth
    • $17,559 per capita
  • Unemployment:
    • 8.1%
  • Inflation (CPI):
    • 2.3%
  • FDI Inflow:
    • $2.1 billion

Costa Rica’s economic freedom score is 65.8, making its economy the 68th freest in the 2020 Index. Its overall score has increased by 0.5 point due to an improved score for property rights. Costa Rica is ranked 12th among 32 countries in the Americas region, and its overall score is well above the regional and world averages.

Costa Rica’s economy has been stuck in the mid-range of the moderately free category since the inception of the Index in 1995. GDP growth has mirrored that solid but unspectacular performance over the past five years.

For the economy finally to break through this inertia and begin a sustained trajectory toward greater freedom and prosperity, the government, while continuing its broadly orthodox economic policies, will need to find the will to undertake politically difficult reforms to liberalize labor policies and reduce budget deficits.

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Background

The most prosperous of the Central American Common Market’s five countries, Costa Rica has a long history of democratic stability and one of Latin America’s highest levels of foreign direct investment per capita. President Carlos Alvarado of the center-left Citizen Action Party, elected to a four-year term in 2018, faces a complicated political landscape marked by a fragmented legislature, high public dissatisfaction with the political class, a tangled political system, and economic and fiscal problems. Traditional agricultural exports of bananas, coffee, sugar, and beef are still the backbone of its commodity-driven export economy, but Costa Rica is also one of Central America’s most popular ecotourism destinations and an exporter of medical devices and other high-value-added goods and services.

Rule of LawView Methodology

Property Rights 66.7 Create a Graph using this measurement

Judicial Effectiveness 54.4 Create a Graph using this measurement

Government Integrity 57.2 Create a Graph using this measurement

The laws governing investments in land, buildings, and mortgages are generally transparent. Secured interests in both chattel and real property are recognized and enforced. The courts are independent and impartial, and their authority is respected. Laws against corruption are effective and generally well enforced. Transnational criminal organizations engage in money laundering and other financial crimes, exploiting the weakness of enforcement.

Government SizeView Methodology

The top personal income tax rate is 25 percent, and the top corporate tax rate is 30 percent. Other taxes include general sales and real property taxes. The overall tax burden equals 24.1 percent of total domestic income. Government spending has amounted to 19.7 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 5.8 percent of GDP. Public debt is equivalent to 53.5 percent of GDP.

Regulatory EfficiencyView Methodology

Businesses face a number of new regulatory requirements and challenges. A new legal entities tax has made starting a business more difficult. Informal employment as a share of all employment has been rising. As of mid-2019, several labor-related bills were pending before the National Assembly. The government subsidizes hydroelectric power generated by the state-owned electric utility. Agricultural subsidies increased in 2019.

Open MarketsView Methodology

The total value of exports and imports of goods and services equals 66.8 percent of GDP. The average applied tariff rate is 1.8 percent, and 65 nontariff measures are in force. Foreign and domestic investors are generally treated equally under the law. Credit is generally allocated on market terms. Despite increased market competition, state-owned financial institutions dominate the banking sector and influence lending.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Canada78.20.5
2Chile76.81.4
3United States76.6-0.2
4Colombia69.21.9
5Uruguay 69.10.5
6Jamaica 68.5-0.1
7Saint Lucia68.2-0.5
8Peru67.90.1
9Panama 67.20.0
10Saint Vincent and the Grenadines66.81.0
11Mexico661.3
12Costa Rica 65.80.5
13The Bahamas64.51.6
14Guatemala 641.4
15Paraguay 631.2
16El Salvador 61.6-0.2
17Barbados61.4-3.3
18Honduras 61.10.9
19Dominican Republic60.9-0.1
20Dominica60.8-2.8
21Trinidad and Tobago58.31.3
22Belize57.42.0
23Nicaragua 57.2-0.5
24Guyana56.2-0.6
25Brazil53.71.8
26Argentina53.10.9
27Haiti52.3-0.4
28Ecuador51.34.4
29Suriname49.51.4
30Bolivia42.80.5
31Cuba26.9-0.9
32Venezuela 25.2-0.7
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