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Figure 45. Costa Rica: Percentage of beneficiaries who are not part of the target group, by programme,
2007
Source: Trejos, 2009.
2. Social contributions play a critical strategic role in the sustainability of Costa Ricas entire social protection system. The earmarked contributions are adjusted according to
the aggregate wage and to the administrative capability of the CCSS to collect that revenue. The contribution collection mechanism is isolated from short-term fiscal
decisions and social expenditure is reduced accordingly. Even if future governments increase spending on social protection as is currently happening with the National
Care Network, the possibility of raising the level of social investment is certainly constrained by the countrys relatively low tax burden of 16 per cent of GDP
excluding social contributions. Such a possibility depends on the implementation of far-reaching fiscal changes. The tax burden would need to be increased by 2-3
percentage points of GDP and tax evasion would need to be cut at least by half. The National Comptrollers Office Ministerio de Hacienda, 2010 has estimated that
income tax evasion is about 79 per cent of potential income tax collection, an unacceptable figure that corresponds to 3.6 per cent of GDP.
3. The reallocation of resources is a very complex task. First, as previously established, the level of social spending as a percentage of government expenditure is already
high, so reducing the budget in certain areas to increase social budgets will affect the performance of other sectors. In addition, more than 80 per cent of Government
expenditure is fixed and thus it is difficult to move resources to other priorities. Finally, competition for funds has recently been increasing on account of the
countrys severe infrastructural problems.
4. The network of institutions should be reduced in order to lower administrative costs and improve coordination among plans and programmes. The integration of all the
existing databases of beneficiaries into a single system would seem to be an urgent matter. Existing targeting problems, duplication of efforts and the apparent inability
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to disenfranchise families that receive more than one benefit point to a need to integrate many of the schemes that exist.
5. The relatively small number of people with a very low income in Costa Rica in comparison to Latin America as a whole calls for the concept of poverty to be
redefined and for an expanded multidimensional approach to be adopted. Institutions such as FONABE are now looking for alternative targeting methods that measure
vulnerability instead of poverty alone, so that the identification of beneficiaries can be more efficient than before. A change of this nature implies the incorporation of social
groups that are not typically considered as poor.
6.7.2 Lessons learnt
Some of the main lessons learnt from the case of Costa Rica are set out below. Lesson 1
Costa Rica is an excellent illustration of the fact that economic growth is important but not the key determinant in the provision of extensive social protection. The country took
advantage of the highly positive growth rates experienced in the 1960s and 1970s to establish core bodies that became permanent institutions.
Lesson 2 Social contributions in Costa Rica play a critical role in the creation of fiscal space.
Although, theoretically, higher social contributions are associated with higher labour costs and, therefore, with increasing labour market informality, the evidence in this case is not
conclusive. On the contrary, Costa Rica has one of the highest rates of nominal and effective social contributions in all Latin America yet, along with Chile and Uruguay, it
has one of the lowest rates of informality. The country also appears among the top countries in terms of competitiveness, well above regional averages. As in the case of
Brazil, social contributions do not therefore seem to be associated with labour market informality.
Lesson 3 Viewed in the long term, the social security system has acted as a direct contributor to the
countrys competitiveness by enhancing the health status of the population, and as an indirect contributor by reducing inequality and promoting social peace
– two elements that investors are inclined to give weight to when deciding where to locate their companies.
The national health insurance scheme is a solidarity-oriented system in which the lowest income groups receive at least four times their contribution to the system. This cross-
subsidization has allowed low-income classes to have access to the same services as high- income classes. All this has a positive effect on the generation of future income, growth
and fiscal revenue.
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Lesson 4 Costa Rica is also a case in which social development has come from within. ODA
resources played no significant role in the construction of the country’s social protection system. Yet, at the time the mandatory social insurance programme was launched, fewer
than 40 per cent of the population wore shoes. Lesson 5
The extension of social protection is a highly political issue. The abolishment of the army and the approval of the Social Security Act were two atypical decisions for a highly
underdeveloped country, as well as in terms of their timing. The first decision made Costa Rica the first country in the world without a military budget. The second involved agents
that, in principle, had nothing in common. Both measures signified an enhancement of the availability of resources and helped to consolidate a model in which human capital
formation was the centrepiece. All this required a clear long-term vision on the part of society as a whole.
Lesson 6 In terms of governance, the tripartite body that manages Costa Ricas social insurance fund
workers, employers and Government, all represented on the Board of the CCSS and the mechanisms that promote social dialogue among the different parties have worked as a
powerful political shield to protect the collection of social contributions. For instance, during the 1980s and 1990, when the neoliberal structural adjustment and stabilization
packages reduced central Government spending on health to a historical low, the revenue of the social security system actually increased and helped to keep expenditure on health at
the same level.
Lesson 7 Money is important but, again, money alone is not enough. For more than a decade, from
1994 to 2006, poverty rates in Costa Rica remained stable at around 20 per cent of the population, despite the fact that an extensive institutional framework was already in place.
That said, there remain problems with targeting and with programme design.
Lesson 8 Achieving results demands patience. The social insurance programme did not cover the
entire population from the very start but was a process that took more than 30 years to complete. A strategy such as this calls for permanent institutions, and that is what Costa
Rica established. More than 80 per cent of the countrys core social programmes were created 25 years ago and the two building blocks of the social strategy, the CCSS and the
FODESAF, have been in existence for more than 35 years.
Lesson 9 To meet the necessary conditions, the country had to identify appropriate financing
sources. In the case of Costa Rica, there is a mix of financial sources that includes payroll contributions, earmarked taxes and other lesser sources such as profits from the national
lottery. The problem with this type of design, however, is that in times of crisis the revenue tends to decrease just when poverty is on the increase. It is therefore important that part at
least of the financing be fixed or stable, even though this may have negative fiscal implications.
