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Economic Policy Reforms 2023
Going for Growth
Report
Economic Policy Reforms
Table of contents
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Costa Rica
Product and labour markets functioning
Performance gaps
Regulations do not take into account their impact on competition. The national competition authority remains severely under resourced, which hinders its potential to improve regulations and open up key markets that would translate into lower prices for households and lower costs for firms.
Female labour market participation is hampered by care responsibilities, particularly in low-income families as children from disadvantaged households have lower access to early education.
The number of STEM graduates does not meet labour market demand. University funding mechanisms lack incentives for accountability and quality in education and research.
Recommendations
Provide the national competition authority with the financing set in the law.
Conduct regulatory impact assessments when developing new regulations.
Expand the coverage of early education for children below four years, giving priority to low-income families and using co-payment mechanisms.
Modify universities funding mechanisms by linking additional funding for public institutions to system-wide performance goals such as increasing STEM programmes and the number of graduates.
Digital transition
Performance gaps
Costa Rica has made progress in mobile internet connectivity but lags in fixed broadband penetration, whose subscriptions are expensive. Excessive regulation, especially at the municipal level, causes high regulatory barriers to e-communications, hindering infrastructure deployment. Costa Rica also lags in the deployment of its 5G network.
Recommendations
Streamline and harmonise regulations to facilitate infrastructure deployment and lower entry barriers for new operators.
License the 5G spectrum through a transparent concession process.
Inclusiveness, social protection, and ageing
Performance gaps
The poverty rate has remained largely unchanged while inequality has trended up over the last 25 years. With unemployment rate above 10%, female labour force participation rate below the OECD average and informality affecting nearly half of employment, there is a need for reforms to improve education, training policies equality of opportunities and to reduce gender inequalities.
Around 30% of individuals older than 65 have no pension and significant demographic changes ahead require reforms to buttress the pension system.
Several social programmes also suffer from mistargeting.
Recommendations
Link the statutory retirement age to increases in life expectancy to improve the sustainability of the pension system.
Introduce a universal pension covering to reduce old-age poverty.
Reduce the fragmentation of social programmes while improving targeting.
Reduce social security charges for low-income workers. Eliminate payroll charges not allocated to finance social security.
Climate transition
Performance gaps
The level of GHG emission in Costa Rica is low by international standards, but it is rising due to the increase of private vehicle use. With almost 100% of the country’s electricity mix stemming from renewable sources, emissions from the transport should be reduced to achieve the goal of net-zero emissions by 2050.
The funding of the Payment of Environmental Services scheme should be changed to continue to support reforestation.
Recommendations
Align taxes on vehicles with their emissions to encourage a shift towards less polluting vehicles.
Update toll fees to ensure they reflect the cost of road use and introduce congestion charges.
Broaden the sources of financing of the Payment for Environmental Services scheme, currently based on fuel tax revenues and will fall overtime.
Harmonise and gradually increase the carbon tax rate once high energy prices start falling, and channel part of the revenues towards low-income households.