Costa Rica - Future trends

Economic policy in Costa Rica will hinge upon institutional reforms that will alter the balance between the state and the private sector. Although popular sentiment is antagonistic to privatization of public companies, there is a growing awareness of the need for these companies to achieve greater efficiency and effectiveness. At the same time, the budgetary constraints faced by the country in the year 2000 are restricting its ability to invest in infrastructure, health, and education. Since future competitiveness relies on these investments, a reassessment of public finances will be inevitable.

Recent revisions of the methodology employed by the Central Bank to calculate GDP revealed that national production figures reported in past years have been understated. This has led critics to point out that the tax burden—measured by tax revenues as a percentage of GDP—in the country is inordinately low. A reform of the tax code could ameliorate the fiscal constraints of the government. Reform is also required to adjust accounting for the effects of inflation, which reduces the effective tax rates. However, these effects will probably not materialize in the short term because of the political challenges they pose.

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