Changes in the Costa Rica’s Economy

After learning more about the history of the Costa Rican government and economy, I am better able to explore the reasoning behind why certain shifts in these areas have occurred in the past several decades. Some questions I was particularly interested in concerned the shift away from dependence on the coffee industry, the rise of the middle class, and the high taxes.

Why has the economy shifted away from its dependence on the coffee industry since the 80s? When the coffee industry was at its largest, agriculture, and particularly coffee, made up the majority of the Costa Rican economy. However, it now makes up only about 6% of the economy due to the shift toward investment in medical treatments and ecotourism. The reasoning behind the shift toward medical treatments in the past several years is the large amount of money that patients will pay in the country during their stay in comparison to that spent by typical tourists. These patients spend money on the treatment itself in addition to purchasing more products in general. Because of these factors, patient tourists spend 10% more overall, which is a major incentive behind shifting the economy in that direction. In my opinion this is a smart decision because of how much more money can be brought in. Even earlier than this shift was the shift toward ecotourism and sustainable agriculture that began in the 90s. This occurred when people began to realize that destroying natural resources was not a sustainable practice. At the same time, they noticed that environmental tourism was increasingly popular, so it made sense to work toward sustainability. I feel that this shift is extremely beneficial for both the economy and the environment in Costa Rica. The Ticos’ behavior with respect to the environment reflects this idea because of how concious they are of conserving resources such as energy and water.

Why did the middle class begin to grow in the 80s? During the 1970s, the classes were extremely polarized into an upper and lower class, largely due to the coffee industry. The upper class was primarily made up of those who worked in mid to high positions in the coffee industry. At this time, their was no middle class, which was problematic for the economy. However, in the 80s, there was state restructuring an changes in economic policies, such as a more right approach, which helped give rise to a middle class. One change that was particularly effective in expanding the middle class was the start of credit cards. Credit cards allowed some people in the lower class to begin purchasing more expensive goods typically reserved for the upper class, which then put more money back into the economy. The logic behind using credit cards makes perfect sense to me because of how much it benefitted the middle class. This time period was very good for Costa Rica due to these changes.

Why are the taxes so high in Costa Rica? One of the main reasons for the high taxes in Costa Rica is that it has a fairly large government for such a small country. Having more people working for the government means that more taxes have to be paid in order to pay the government employees’ salaries. Although the taxes are so high, the deficit is still at 6.6%, which is not a good indicator. In order to decrease the deficit, the taxes would need to be raised even more, which goes against what the Costa Ricans would obviously prefer. Although the Ticos want lower taxes, they also want a lower overall deficit, which brings up a direct contradiction. I understand the reasoning behind the high taxes, and the logic that raising them would decrease the deficit, so I would agree with the view that the taxes need to be raised. This would most likely be difficult however since it goes directly against popular opinion.

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