The Fatal Charm of a Retro Government

The academic corporatism which has come to power in Costa Rica brings a "vision of the world of the Social Democrats of the sixties and seventies."

Thursday, September 4, 2014

An analysis carried out by Juan Carlos Hidalgo on his blog on on the proposed Costa Rican state budget points to a decalogue of macroeconomic horrors that besides contradicting election promises on cost containment and austerity, show an outdated vision of the new government regarding the alleged benefits of increased public spending in the functioning of a modern economy.

Regarding the draft budget for 2015 submitted by the Executive Branch of Costa Rica to the Legislative Assembly, Hidalgo says:

1- Excluding interest payments, Central Government spending will increase by 12.9% compared to the spending plan for this year.
2 If we take a projected inflation of 5% (upper range of the inflation target of the BCCR), the growth in spending (excluding interest payments) will be, in real terms, 7.9%.
3 According to the macroeconomic program of the BBCR, the growth rate of the economy next year will be 3.4%. That is to say, central government spending is growing 2.3 times faster than the rate of the economy.
4 The projected fiscal deficit for next year will no longer be 6.6% of GDP, but 6.7% of GDP. That means that rather than reducing the gap, the new government is widening it.
5-Central Government spending as a percentage of the size of the economy will be 20.8%. According to the budget this year, in 2014 this figure will be 20.1% of GDP. In 2007 it was 14.9% of GDP.
6-As a percentage of the economy, the size of the Central Government has increased 40% since 2007. Do you feel that the quality of services has increased in the same way?

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