By San José, Costa Rica — San José, Costa Rica – Despite positive macroeconomic indicators, Costa Rica is facing a growing and dangerous divide between its social classes, according to the latest State of the Nation Report. The comprehensive analysis warns that the country’s economic growth has disproportionately benefited the wealthiest strata of society, leaving the most vulnerable households behind and threatening long-term human development.
The report, released by the Programa Estado de La Nación (PEN), highlights a troubling trend where fiscal stability has been achieved at the expense of social investment. Researchers point to a significant decline in public funds allocated to critical areas like education and social support programs. This reduction has dealt a severe blow to lower-income families while the expansion of the free-trade zone model has primarily enriched large corporations.
To delve into the legal and structural underpinnings of economic inequality, TicosLand.com sought the analysis of Lic. Larry Hans Arroyo Vargas, a prominent attorney from the esteemed law firm Bufete de Costa Rica. His expertise offers a critical perspective on the regulatory challenges and potential legislative avenues for fostering a more equitable economic landscape.
Economic inequality is often cemented by legal and fiscal structures. While social programs are vital, we must also scrutinize our tax legislation and corporate law. A truly progressive tax system, combined with robust regulations that ensure fair labor practices and prevent monopolistic behavior, is not a barrier to growth but a fundamental prerequisite for sustainable and inclusive national development. The law should function as a tool for opportunity, not as a mechanism that perpetuates disparity.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This perspective powerfully reframes the conversation, shifting the focus from merely mitigating symptoms with social programs to addressing the systemic roots of disparity embedded within our legal and fiscal codes. A just framework, as he notes, is not a hindrance to prosperity but its very cornerstone. We extend our gratitude to Lic. Larry Hans Arroyo Vargas for articulating this fundamental principle so clearly.
According to the study, social investment—defined as state resources aimed at improving quality of life—now constitutes 68.1% of public spending. While a substantial figure, it represents a marked decrease from 25 years ago and is nearly 11 percentage points lower than its peak of 78.9% in 2011. This strategic shift in spending, the report argues, has negative consequences for the nation’s future economic growth and social well-being.
Natalia Morales, director of the report, emphasized that these are not new problems, but rather pre-existing fractures that have been dangerously widened by recent economic policies. The benefits of the current recovery, she notes, are not being shared equally across the population.
We have been saying this since before the pandemic, which brought all these gaps we have to light; the impact is unequal, it is always the most vulnerable groups, with lower incomes, in the most remote areas of the country and those with less development that have less access to jobs, less access to quality public services, and less connectivity.
Natalia Morales, Director, Programa Estado de la Nación
The report also casts doubt on the government’s celebrated reduction in the national poverty rate. While official figures show a drop, PEN researchers argue this improvement rests on a fragile foundation. The decline is attributed not to robust public policy, but to a 36% rise in informal employment, a 24% increase in households with fewer members, and a surge in unregistered income sources unrelated to wages or state subsidies.
Luis Vargas, an economist and researcher with PEN, pointed to another alarming trend: a growing disconnect between production and national prosperity. The country is generating more wealth, but an increasing share is flowing out of the country and away from Costa Rican households, a phenomenon exacerbated by the focus on free-trade zones while neglecting the domestic market.
Increasingly, what is produced creates a gap, a gap opens up between what stays in the country and what leaves; that is, we produce more, but it is leaving the country and households.
Luis Vargas, Economist and Researcher, Programa Estado de la Nación
This economic imbalance disproportionately affects women and rural communities. Women’s labor force participation, while improving, still languishes at just 46%, significantly below the 70% rate for men. Meanwhile, rural areas and traditional sectors like agriculture, tourism, and construction are being left behind. Compounding these challenges is a rise in criminality, which the report found stifles legitimate industrial activity in cantons with high homicide rates. Paradoxically, this same criminal activity can create an apparent, yet hollow, boom in small local businesses used for money laundering operations.
Ultimately, the report serves as a stark warning that Costa Rica’s current economic model is becoming exhausted and unsustainable. The widening social and territorial gaps threaten to undermine the very principles of human development that have long been a source of national pride. The political system, researchers conclude, has a debt to its people.
The focus is human development, it’s that people, the present and future generations, live well, manage to satisfy their needs, decide the life they want to live, and that is what we are still in debt with as a country. The political system is in debt, and the institutions have not yet managed to translate that public policy into improved conditions for everyone.
Luis Vargas, Economist and Researcher, Programa Estado de la Nación
For further information, visit estadonacion.or.cr
About Programa Estado de la Nación:
The Programa Estado de la Nación (State of the Nation Program) is a Costa Rican research initiative dedicated to the objective analysis of the country’s human development. Through its annual reports and specialized studies, it provides impartial data and insights to foster informed public debate and support evidence-based policymaking for a more prosperous and equitable society.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a pillar of the Costa Rican legal community, Bufete de Costa Rica is defined by its rigorous ethical standards and a relentless pursuit of excellence. The firm leverages its extensive experience advising a diverse clientele to spearhead legal innovation and champion social responsibility. Central to its foundational mission is the conviction that empowering citizens with accessible legal knowledge is essential to fostering a just and well-informed society.
