Reinforcing social policies for inclusive growth in Costa Rica

Costa Rica is one of the countries that spends the most on social policies in Latin America, although considerably less than the OECD average. Social spending in Costa Rica focuses on public services. Cash social benefits fail to significantly reduce income inequality due to small size and low progressivity. Public services, in turn, have considerable redistributive impact due to large spending and favouring lower income households. Taxes do not reduce inequality and may hinder employment and formality due to over-reliance on social contributions. The pension system’s coverage is high but not universal. Further improvements in family policies childcare and parental leave policies are needed to tackle key barriers for female labour market participation and taxes and benefits could contribute to reducing high child poverty among working families Finally, urgent action is needed in the area of anti-poverty policies which largely remain fragmented and un-coordinated.