OECD Calls on Costa Rica for Swift Tax Reforms

The Organization of Economic Cooperation and Development (OECD) recently conducted its first assessment of Costa Rica. The results of the assessment were announced on Tuesday in San Jose by OECD Secretary-General, Angel Gurria, and Costa Rican President, Luis Guillermo Solis. 

While the OECD lauded Costa Rica for making impressive economic, social, and environmental progress, it warned that further action is still required. The OECD called for institutional and policy reforms aimed at creating stronger and more inclusive growth. 

The Organization of Economic Cooperation and Development (OECD) recently conducted its first assessment of Costa Rica. The results of the assessment were announced on Tuesday in San Jose by OECD Secretary-General, Angel Gurria, and Costa Rican President, Luis Guillermo Solis. 

While the OECD lauded Costa Rica for making impressive economic, social, and environmental progress, it warned that further action is still required. The OECD called for institutional and policy reforms aimed at creating stronger and more inclusive growth. 

The OECD reported that the key to accelerating growth for Costa Rica is attracting foreign direct investment, raising the standard of living, and affecting institutional changes to items like public finances.

As the OECD Secretary-General said, “The Costa Rican economy is gradually recovering from the global economic crisis, and is now expected to grow faster than most of the other countries in Latin America, as well as most of those in the OECD …  While growth is projected to remain strong over the coming two years, at about 4% annually, budgetary pressures are becoming more persistent. Putting the house in order will require raising more tax revenues, restraining public spending while improving its efficiency and ensuring that public finances are managed in an effective manner.”

Costa Rica is going through the OECD accession process, which it started in April 2015. The OECD Economic Assessment was part of that process and designed to contribute to the creation and execution of reforms designed to help Costa Rica to modernize, improve the standard of living for its people, and grow its economy. 

Chief among the OECD’s suggestions was that Costa Rica act immediately to consolidate public finances. It proposes that this should be accomplished through programmatic cuts to the nation’s budget deficit over the next three years. The OECD advised Costa Rica that it needed to make swift tax reforms, find ways to fight tax evasion reduce or eliminate a number of tax exemptions, and cut back on public spending. A final proposal involved the creation and implementation of a medium-term fiscal framework that includes verifiable expenditure rules. 

Of course, with all of the cuts to spending and the reduction of the nation’s deficit, living standards could easily be sacrificed. To combat that, the Assessment called for productivity boosting measures, programs to reward and encourage innovation, and policies to improve competition and better governance of state-run businesses. The OECD also recommended implementing measures to enhance inclusiveness, particularly for women.