The Economy of Costa Rica
Fiscal Strain and Debt
High public spending and low taxes led to large deficits, and a 2018 tax reform and later fiscal rules helped stabilise debt.
Bills for the model.
Deficits
Social spending and public wages pushed deficits up.
2018 reform
The country introduced a VAT and a fiscal rule.
Result
Debt-to-GDP peaked and began to fall after a pandemic spike.
Ratings
Credit rating agencies upgraded Costa Rica in recent years.
A new tax
A value-added tax replaced the older sales tax and raised revenue.
Assuming social spending can grow without funding
Taxes must match promises.
Key takeaways
- Deficits were large.
- A VAT was introduced in 2018.
- Debt began to fall.
- Ratings improved.
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