4 Reasons Why Costa Rica Is So Expensive
Coming to Costa Rica from the US or Europe, you might be surprised to find that the cost of living feels about the same, and in some cases even more, then wherever you are coming from. In my case, I was coming from the San Francisco Bay Area, in California, which is one of the more expensive places to live in the United States, so I have a good sense of what it means for a place to be expensive.
Looking back, the 3 months I spent in Samara and the way my living situation evolved almost acts as a direct analogy for someone moving through the different layers of the Costa Rican economy. When I first arrived in Samara, I was very much in vacation mode. I had a room at a hotel right on the beach, I ate at restaurants for most of my meals, and I was doing lots of things for fun to explore the region, like renting a car and paying to do certain activities. But I quickly found that my dollar wasn’t going as far as I thought it would. Food was expensive, housing was expensive, and activities were expensive.
By the second month, I had to completely reevaluate my lifestyle if I was going to be able to extend my stay. So, I moved off the beach further into the city, I rented a place from a French woman where I could cook meals so I would eat out less frequently, and more of my leisure activities became hanging out at the beach and social engagements (so free things).
By the third month, I had moved out of the main city over the bridge into the neighborhood where most of the locals lived. I was renting from a Tico, I was almost exclusively eating home-cooked meals, and I was doing more shopping at the farmer’s markets than at the grocery stores. In short, I went from being a tourist to living like a Tica, very quickly.
You might read that and think, “Ok? So, you had to adapt your lifestyle to living in a new country.” And it’s true, being in a country as a tourist versus as a local means your lifestyle will evolve to reflect the new reality and priorities. But even having made all of these lifestyle changes, I was surprised by how disproportionately expensive some things still felt. Meaning that even though I had made all these lifestyle changes to manage my expenses, it still didn’t feel like my dollar went very far. So, in many areas of my life, I actually felt priced out of certain things that would have been considered “standard living” in the States.
After a year and a half, I am still pretty surprised when I buy certain things and the price is 2–3x what I would pay in the US. I am much more savvy now, and that comes with learning how to navigate living here. But even though I’ve found ways to adapt, I wanted to understand WHY it’s so expensive to live here. And I don’t just mean that as an expat. Many Ticos will tell you living in Costa Rica is expensive as well.
So this is my shot at making sense of it.
The Layers of Costa Rica
The best way to start answering this question is by highlighting the fact that there are layers to the Costa Rican economy. I’m going to provide some data to paint this picture, but the framing is mostly based on my perception of the different levels of society which is informed by my lived experience and the differences I’ve seen in local purchasing power. Notice how the breakdown I share below also maps against the different experiences I had while living in Samara.
I see the Costa Rican economy as having 4 layers:
- The Tourist Layer: The tourist experience is an entire range of experiences, amenities, and services that are all geared towards foreigners, and therefore priced for foreigners, who come to Costa Rica for vacation.
- The Upper-Class Layer: This demographic of Ticos makes more money and therefore can afford a lot of the tourist experiences/amenities, can tap into and use the infrastructure that is catered to tourists, and live with a lot of modern-day comforts that would be common in the US or Europe.
- The Porous Layer: This demographic has some disposable income, and so they are occasionally able to tap into the upper class/tourist economy, but for most other areas of their life, they “live like a Tico”.
- The ‘Live like a Tico” Layer: The phrase “live like a Tico” is commonly used in expat communities to describe how people are sustaining themselves in Costa Rica. This demographic represents the average Tico life as far as income and resources. In this case, disposable income is often limited, they own a home, likely have a cheap/older car, and most basic needs are met.
I include the porous layer because, from what I’ve seen, that’s a better representation than the ‘middle class’ is. I almost think of it more like a salad bar where some parts of life fall into “Tico Living” while other parts fall into the “Tourist/Upper Class” layer. And the reality is there are no hard lines here. There are ways people experiencing life at the “Tourist/Upper-Class Layer” might economize or just be living their lives and engage with things that are accessible to everyday Ticos. There are ways foreigners (travelers and expats) learn how to make adjustments to their lifestyle that move them into the lifestyle of someone who is a native for some things and more upper class for others. And there are ways people with less buying power might pop into the “tourist” economy, although it’s much harder and less common in this direction for obvious reasons.
I want to contextualize these layers by sharing what life looks like for both an expat and a Tico.
The Expat Life
I’ve put together these profiles based on people I know and what I’ve seen and heard from other expats. I find most ex-pats fall into one of three buckets of monthly income:
- ~$2,500+/month: This would put you in that tourist/upper-class category
- ~$1,500/month: You are probably renting from a Tico (~$600/mon), which gives you a little over $1,000/month for food, utilities, and other household expenses. This means you can use your disposable income to go out, eat out, and go on some adventures over the course of the month
- ~$1000–500/month: You are probably renting from a Tico (~$300/mon), mostly cooking and eating at home, taking public transportation, and shopping at the farmer’s markets. You probably aren’t spending much on activities or excursions and if so, it’s free, smaller scale, or less frequent. It’s a simpler, much more bare minimum kind of living experience.
The Tico Life
Let’s contextualize this with the July 2022-July 2023 National Household Survey Data from The National Institute of Statistics and Censuses (INEC). According to the survey, this is the breakdown of income levels across Costa Rica:
- The richest 16% of Costa Ricans are earning an average of about $2,248/month (₡1,200,000)
- A person in Costa Rica’s middle quintile has an average income of about $495/month (₡253,196)
- The poorest quartile is 22% of Costa Rica’s population and they average $138/month (₡70,750) in income
In Costa Rica, roughly 1.2 million people, more than 20% of the population, live below the poverty line. And 65% of Costa Rica’s population is averaging $500 or less a month in income. Now, when you compare that to how I described foreigners living at the $1,000–500 income level, it starts to paint a very stark picture of how little buying power most of the country has.
It also highlights how there is only a very small minority of the population (16%) that can even financially access the upper class/tourist level of the economy. This is significant because so much of Costa Rica’s infrastructure is disproportionately set up for the tourist/upper-class experience and the overwhelming spillover effect that is having on the rest of the economy creates an environment where many Ticos are living in their own country, but paying foreigner prices.
What exactly is so expensive?
Now that we’ve highlighted the economic layers of Costa Rica, let’s jump into what exactly is expensive here. At a high level, the question is actually very easy to answer: It’s imported goods, so anything that has been made outside of the country and imported in. All imported goods are taxed, making them much more expensive to buy here than they would be in the US or Europe.
Some examples of goods that are more expensive are:
- Clothes
- Electronics
- Electronic accessories, video games, and consoles
- Food and food products
- Cars and car parts
- Gasoline
- Home furnishings
- Appliances
Special additions that aren’t goods are:
- Restaurants and eating out
- On the coasts, temporary housing, renting or buying property
- Electricity, especially if you want to run AC or if you have an office
- Car registration fees
And honestly, even locally-produced food is expensive. A woman who has lived here for several years shared that the price of some local food products has gone up 2 or 3 times since she arrived. And when you consider that food is often many people’s largest expense, the increase starts to eat up your budget.
What tends to be cheaper here than in the US or Europe are services, namely labor and other public services. This would include:
- Labor (barber, in-home care, gardener, etc.. )
- Health care, medication, and dental care
- Local transportation (buses)
- Housing (renting or buying, depending on the location)
- Some utilities
- Some food items
To provide some additional nuance, there are two filters that I’ve found can have an additional influence on the cost of living (by increasing or decreasing the cost). And that is the language you speak and where in the country you want to live.
On the language front, especially as an expat, if you speak Spanish, you are more likely to get a better price or a local price than if you speak English, and this is especially true when shopping, looking for housing, or buying a car. If you can only operate in English or speak broken Spanish, you are most likely going to be getting the Tourist price. This probably seems obvious, but I had a friend from Argentina come into town and it blew my mind how much of a better deal she was able to get on things simply because she was a native Spanish speaker. So I highlight this to say, that being a tourist from a Spanish-speaking country can yield a very different financial experience in Costa Rica than being from a non-Spanish-speaking country.
The second filter on this conversation is regarding your location. Of course, living in Beverly Hills is going to be more expensive than in Bakersfield, because the demand for living in certain locations is going to increase the cost of living there. In Costa Rica, living in a coastal city tends to be more expensive than living in the mountains, or the central valley. Of course, there is nuance here, but from my perspective, I’ve found housing costs in particular on the coasts to be almost double or more than those of the Central Valley. So where you are in the country also plays a big role in the prices you’ll get.
The 4 factors that together make Costa Rica expensive
With all of that in mind, and based on my observations, conversations, and research, I’ve identified 4 key interconnected factors that appear to be driving the high cost of living in Costa Rica.
High Taxes and Government Inefficiencies
TLDR: The poor use of government funds is driving up operating costs and government debt, so the government uses taxes to cover expenses, and these additional costs get passed to the consumer.
There are several ways that the government, through high taxation and other interventions, is creating a high-cost living environment. And it all starts with having an understanding of the state of the Costa Rican economy. The Costa Rican government has two main issues. One is that they have not figured out a way to generate income to cover their expenses and grow the economy, and the other is that they have not been efficient with their spending. I’m going to focus here mostly on how poor government spending and a lack of consistent income are leading to high taxes.
The government appears to be overstaffed and overpaid. Between 2005 and 2021, the government payroll grew from 223,880 people to 323,230, so an increase of 100,000 positions and in percentage terms a 44% increase in staff. The reason this is significant is that in 2009, the Costa Rican government also adopted a policy where they began to pay government staff at a level equal to the median salaries of workers in the private sector, which is typically 2–3x higher than the local industry equivalent.
So in some cases, and this is based on conversations I’ve had with people who have contracted for the government, you’ll find situations where 4 people have been hired to do the job of what should only take 1 person to do, and that each of those individuals was getting paid double or triple the salary to do it. There are also instances where government staff in the banking sector or medical field administrators were getting paid anywhere from $8,000/ month to $30,000/month for managerial jobs, which are largely disproportionate to both the income levels in the country and the private sector equivalent.
These types of spending inefficiencies were one of several factors feeding Costa Rica’s increasing debt burden. Over the last two decades, “the public spending structure has outpaced the government’s income. Consequently, Costa Rica’s government balance has been negative and, therefore, financed with internal and external public debt.”
Secondly, the Costa Rican government relies heavily on taxes to cover public spending. Without additional forms of income, it struggles to cover the costs of the public services it offers, without going deeper into debt. Health care is the largest in-kind program for the Costa Rican government, accounting for 43% of total social spending. And “about half of Costa Rica’s government’s public expenditures are dedicated to social spending, which focus on benefits in kind. Approximately 67%, whereas the OECD’s average is 40%.”
Because the Costa Rican government does not have sufficient income to cover the cost of many of these programs, the government has approached this by taking on more debt. Between 2008 and 2017, the central government’s debt increased from 24% of GDP in 2008 to 49% of GDP, and by 2020 public debt had hit 67% of GDP. Servicing the interest rate on the debt added even more financial pressure.
In 2018, the Costa Rican government entered into a debt servicing agreement with the IMF to help them reduce the spiraling effect of their debt levels. And now the government is trying to offset the debt with additional taxes and other reforms. The impact of all this taxation is that it gets passed on to businesses and consumers, which often looks like an increase in the prices, more fees, and greater bureaucratic processes (which slows things down and increases costs) in order to collect these taxes and fees.
Poor Industry Diversification
TLDR: The lack of market competition means the few big companies can keep prices high and it’s hard for small businesses to break into the market and compete with the companies setting market prices.
The Costa Rican government’s main priorities are to figure out how to service debt, cover expenses, and grow the economy. As I’ve mentioned, the only consistent way they have been able to generate income for the government is through taxes. There are taxes targeted at the consumer market, and there are taxes for businesses. The consumer market I’ll address later when I talk about import taxes, but there are two key ways the government is capping the growth of local industries.
The first is through the fact that it is incredibly expensive to start and run a business. In 2014, the total tax rate (including labor, income, and other taxes) amounted to 55.3 percent of an average local business’s profit, which is incredibly unsustainable. According to the World Economic Forum’s Global Competitiveness Report, “the most problematic factors for doing business in Costa Rica are inefficient government bureaucracy, lack of access to financing, and onerous tax and labor regulations — along with poor infrastructure.”
Then you layer high tax rates on top of things like Labor Laws where all registered businesses are required to provide their staff with medical care and social security, which is an additional expense, it all start starts to sound like it would disincentivize someone from starting a business in the first place or make it difficult to grow an existing business becuase of all these associated fees. (PS: I’m not saying the labor laws are bad at all, I’m trying to demonstrate the financial pressures many often small businesses face).
And the consumers lose in the end because businesses have no choice but to pass along the costs of these things to the consumer, which increases prices. This also just limits the options in the market, so no one is creating new companies that introduce new products that give consumers more options to choose from, which is part of what helps keep prices in a market down.
The second element is that the government supports and participates in monopolistic behavior. To date, there are 28 state-owned enterprises, the most significant being in electricity, telecommunications, oil refinement and distribution, insurance, banking, and alcohol production.
Because these monopolies exist, it means there isn’t any competition for them in the market that would force them to offer their products at more competitive prices. And that is because there just isn’t any competition. A prime example of this is ICE, the state-run energy company. Citizens and business owners often lament about the high cost of energy, but because there is only one energy provider, everyone is just stuck with these high costs, and there is no pressure or incentive for ICE to find more efficient ways to provide their services or make their price more affordable.
On the opposite end of the spectrum, you have the example of what happened in the Telecommunications Industry where in 2010 a public auction was held where Claro and Telefonica, two telecommunications companies, entered the Costa Rican market. In the first few months, the companies quickly acquired 500,000 customers. The price alternative they offered forced the major provider to drop their prices to become competitive which led Costa Rica to experience cheaper phone prices across the country and made them more price competitive with neighboring countries. This not only reduces the cost of living and doing business, because this expense has been reduced, but it makes Costa Rica a more attractive investment destination because costs are competitive with neighboring countries.
Monopolistic tendencies exist even outside of the state-owned businesses in Costa Rica. Let’s take the dairy market, for example. There is a company called Dos Pinos, which started in 1947 as a dairy cooperative for dairy farmers. Today, they sell dairy, beverages, and candy products and they have a brand portfolio of over 600 brands that are sold throughout Central America and the Caribbean.
Cheese in Costa Rica is expensive! And you only have 3 options. You can buy the imported cheese, which depending on the cheese, can be 2–3x more expensive than what you would pay in the US. You can buy Dos Pinos, which has priced their products at about the same price as imported products, or you can buy from a farmer at a local market, which is limited in the selection of cheese. So at most grocery stores, you only have the imported option or the Dos Pinos option, both of which are very expensive.
Now, here is where the issue lies. I’ve learned that there are several small-scale, homegrown dairy companies, as well as large multinational companies that have tried to enter the market and have been pushed out. While Dos Pinos’ ethos about supporting small-scale farmers is critical to supporting livelihoods, not allowing other players into the market limits not only the options consumers have, keeping prices high, but it also limits the options these farmers have to sell their milk at competitive prices as well. These farmers become price takers for whatever Dos Pinos is willing to buy their milk at.
All of these examples show that without more options in the market, and without an enabling environment to do business that allows more competition to enter the market, prices will naturally be higher due to the limited local competition.
Import Taxes
TLDR: The import tax makes the price of everything higher, and there are few local alternatives consumers can turn to to substitute the imported products with
Costa Rica is a small country, so naturally, many goods like electronics and cars are imported since there isn’t a local market for manufacturing and developing these things. And in many cases, it just doesn’t make sense for Costa Rica to manufacture these things anyways, so being able to import them is part of the benefit of having a global trade network.
That said, the prices on many goods are much higher than what you would pay in the US, sometimes double or triple the price, depending on where in the country you are and what you are buying, food included.
The standard import tax on most goods is 13%, and specific goods often yield an additional excise tax on top of that. Here is a breakdown of the taxes that are put on common imported goods:
- Most food products and goods — 13% tax
- Clothing — 30% tax
- Electronic — 48% tax
- Computers — 13% tax
- Electronics accessories, video games and consoles — 55.71% tax
- Cars — 30–80% import tax
And then add on top of that the margin that the merchant needs to make a profit and the cost starts to add up for the consumer. The prices are so expensive that there are several ways people have found to try to offset some of the costs.
- People travel to neighboring countries to shop for certain products (Panama is a tax haven, so many goods are much cheaper there and there is also Golfito, which is a VAT-free zone in the south of Costa Rica where you can get duty-free goods)
- People who can afford it travel to the US to go shopping, where they can get goods much cheaper especially electronics and clothes
- For food, people will often survey the stores near them to see which company has the best rates for certain products. So you might buy poultry and meat at one store, bulk items at another store, and specialty items at another, based on price and availability. For fruits and produce, the local farmer’s markets tend to have the best prices.
What exacerbates the issue of the high import tax is that Costa Rica has many underdeveloped domestic industries, as I outlined previously. So there aren’t any or many local alternatives for these imported products. And if there is a local option, it’s often being produced at too small of a scale to be accessible across the country or sold in the larger grocery stores. One example I think of often is pet food. The cost of pet food is very high and it’s usually not a great quality, but there aren’t any local alternatives. And yet, all of the inputs needed to have a pet food brand are available in Costa Rica, so there could be the potential for a local pet food brand that is healthier for pets and sits at a better price point for the customer.
As I’ve mentioned, there are so many financial and bureaucratic issues that make starting and running a business very challenging. So local alternatives often don’t even have a fighting chance to be able to compete with imported products. By now, you can start to see how all of these factors I’ve mentioned are very interconnected and compound each other.
Tourism & Expats
TLDR: The government’s reliance on tourism is growing the country disproportionately towards the needs of foreigners and not local citizens, which is inflating costs across the country.
The impact the tourism industry has on the economy is the final dimension that carries its own weight, while also exacerbating the impact of all of the other factors that were previously mentioned.
Costa Rica’s economy and economic growth strategy are largely dependent on Tourism. It currently makes up 8.2% of GDP directly and indirectly. Costa Rica receives just over 1 million visitors every year, which, for a country that only has 5.2 million people in it, constitutes a very large demographic and a lot of foot traffic.
On the ground, this has meant that a lot of Costa Rica’s infrastructure, which includes physical infrastructure, logistics infrastructure, and services infrastructure, is geared towards foreigners. What this means is there is an entire economy of hotels, transportation, food, restaurants, and activities that are priced almost exclusively for this target audience. And in some cities, it is very clear that the entire city is set up to serve tourists more than locals, and locals in many cases are service workers in these environments or have small businesses as artisans or freelance tour guides. This occurs because tourists are the greatest sources of income in these areas, and they are paying in dollars for goods and services that have, again, been priced for their level of buying power.
The growth of this economy is playing out in ways that hurt locals and even Tourists alike. From the Tico perspective, it means that things are more expensive than they can afford. As someone once told me, “The country is basing the prices of everything on foreign income and not national income.” As I’ve outlined, the majority of the country is living on an average of $500 a month or less, so they cannot participate in this economy that has been created for tourists. The unfortunate reality is, given how big the industry is, how reliant people are for employment in this industry, and how few income-generating alternatives exist outside the tourism industry, there is often no other option but to keep showing up to work.
The most significant way Tourists are being impacted is via price gouging. Many foreigners arrive in Costa Rica, don’t speak Spanish, and have very little context about what prices are, so they assume the prices they are presented with are “normal”. When in reality, the prices are being set for them, so sometimes they are set at the level of what it would be in the US, or, sometimes the price is massively disproportionate to the value of the product or service. Not knowing any better, tourists pay these prices, which sets a new baseline and keeps prices going up.
Some of the price gouging is purely opportunistic, whether it’s from other Westerns who have invested in Costa Rica and know what foreigners would be willing to pay, or it’s from Ticos seeing the prices going up and following suit. For example, in Playa Coco/Hermosa, I had someone share with me that their friend has been coming to Costa Rica for several years and would always rent the same home for $2,200 a month. When they were leaving on their most recent trip, the owner approached them and told them that he would be raising the rent to $4,700. The owner told them the rent was going up because the property values were going up in the area. Whether or not this is the real reason, they are more than doubling the price of rent, making it expensive for Tourists as well.
This foreigner economy and the high prices it brings starts with people coming to visit, but also perpetuates itself when tourists become expats. Visitors from Europe, the US, and Canada will sometimes go on to buy land and start a business in Costa Rica. This hijacks rental prices, pricing locals out of certain neighborhoods and it increases the costs of restaurants, cafes, or stores in these neighborhoods, so much that locals cannot even be patrons there.
Summary
I write all of this a call to action. I am from San Francisco where the cost of living has gone through the roof, 38,000 people in the SF Bay Area live on the streets, and there is a pressing drug epidemic. I’m not saying that is what is going to happen in Costa Rica, but the reality is, the drug cartels are increasingly making themselves present here, and drug use and petty crime like theft are increasing. People resort to drugs and robbery when there is an economic environment making these the best option to make ends meet. All of that to say, I don’t think the increase in the cost of living and the increase in crimes and drugs are happening in isolation of each other.
More importantly, it’s about creating opportunity. When I hear people give me a rebuttal that Costa Rica “is not that expensive” I don’t think they recognize they are in the minority. From expats, it’s usually those who are in later stages of life who are ok with living in a remote area and want to live a slow, simple life. But not everyone wants that. And I’m thinking about Costa Rica’s youth in particular, who likely want access to higher standards of living, want to be industrious in their own country, and want to feel like they can live a long, prosperous life where they can actualize their own potential. The economic environment here seems to be locked up, making things harder, more expensive, and more inaccessible than they need to be.
I believe that investing in people’s ability to create solutions to their own problems through business can not only help provide sustainable, higher-income livelihoods, but it can contribute to bringing the economic diversity and growth the government is desperately looking for.
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