Economic Freedom Actions for a Just and Prosperous Puerto Rico


Ángel Carrión-Tavárez

Director of Research and Public Policy

“We may as well face the fact, and face it squarely, that we are too much governed. The agencies of government have multiplied, their ramifications extended, their powers enlarged, and their sphere widened, until the whole system is top-heavy. We are drifting into dangerous and insidious paternalism, submerging the self-reliance of the citizen, and weakening the responsibility and stifling the initiative of the individual. We suffer not from too little legislation but from too much. We need fewer enactments and more repeals.” —Roland H. Hartley

Introduction

Economic freedom is the right of every human being to earn an honest living—that is, to work, produce, start a business, sell, buy, and exchange goods and services—responsibly and voluntarily, without undue governmental obstacles or interference. This is one of the most important rights of free individuals, as it relates to their well-being, economic development, and upward mobility, as well as to a higher life expectancy. Where economic freedom exists, there are more opportunities, more entrepreneurship, more jobs, greater prosperity, and less poverty.[1]

For economic freedom to thrive, it is essential to have a streamlined legal and regulatory system and reliable, neutral public policies. This includes rules, regulations, and processes that promote an environment conducive to individual entrepreneurship. The extent to which the regulatory framework and public policies favor the creation and operation of businesses within a jurisdiction is referred to as ease of doing business.[2] Studies have shown that greater ease of doing business leads to higher private-sector investment, more job creation, increased innovation, better wages, and stronger economic growth.[3]

Ease of doing business is vital for domestic and foreign direct investment[4] and is particularly important for micro, small, and medium-sized enterprises (MSMEs), which have less capital and fewer resources. Large corporations have the means to bear the costs of excessive business regulations; however, a favorable entrepreneurial environment contributes to the creation of MSMEs, benefiting individuals and society. MSMEs are the backbone of labor and economies, employing more than two-thirds of the global workforce (Houngbo, 2023).

Individuals in the process of starting or developing their MSMEs need reasonable, transparent, and fair public policies for the success of their initiatives and the achievement of their goals; bureaucracy, burdens, and government barriers are their greatest obstacles. These include matters such as obtaining permits, registering property, getting electricity, paying taxes, accessing financing, and enforcing contracts, among others.[5] It has also been found that jurisdictions with stricter regulatory environments for entrepreneurship and business creation tend to be more susceptible to corruption.[6]

When the requirements and conditions for creating and managing a business are overly burdensome for MSMEs, these businesses often resort to operating informally. In the informal economy, workers, entrepreneurs, and consumers tend to be less protected. Likewise, they are more vulnerable to special circumstances, such as economic crises and natural events. Moreover, the government does not receive revenues from businesses operating informally, and their activities and outcomes are not recorded in public registries for statistical analysis purposes.[7]

It is estimated that over 95% of businesses in Puerto Rico are MSMEs or SMEs with fewer than 50 employees, and that these represent 42% of private-sector employment and 36% of the total annual payroll.[8] Consequently, reducing the regulatory burden for the creation of MSMEs and facilitating their efficient operation on the Island can (a) help these key economic actors better manage their resources and increase potential growth; (b) contribute to keeping operational costs and consumer prices low; and (c) benefit individuals and the state overall.

The mission of the Institute for Economic Liberty (ILE, by its Spanish acronym) is to identify and promote the removal of barriers to economic freedom, fostering prosperity[9] for all residents of Puerto Rico within a free-market system that allows them to achieve their goals and live the type of life they value. In 2022, the Island was included for the first time in the Economic Freedom of North America index, a prestigious study published by the Fraser Institute that assesses economic freedom in 93 jurisdictions across Canada, the United States, and Mexico. In 2022, 2023, and 2024, Puerto Rico ranked as the lowest jurisdiction in the United States.

For decades, Puerto Rico has been subjected to state control over productive assets, significant government intervention in civil society, and high-income redistribution. These conditions have caused economic distortions and market failures that have limited individuals’ and businesses’ appropriability.[10] This has resulted in reduced economic returns, limiting growth by discouraging private investment and entrepreneurship, causing low labor force participation rates, low wages, high poverty levels, and significant emigration from the Island.

The purpose of this document is to highlight laws and regulations that limit economic freedom in Puerto Rico and to offer recommendations for establishing and implementing new public policies. ILE’s proposals seek to promote (a) the cessation of undue and unnecessary intervention in individuals’ economic freedom and private initiative in the free market; (b) the elimination of government control over productive assets; (c) the decentralization of economic planning;[11] and (d) the reduction of income redistribution from workers and businesses,[12] to create more and better opportunities for everyone.

The adoption and implementation of the recommendations included here will help (a) remove barriers to economic freedom; (b) foster private-sector development based on competitiveness and innovation; (c) enable individuals in society to determine what is best for them; and (d) reduce tax burdens that discourage wealth creation, thereby decreasing poverty and dependency. ILE hopes these suggestions will be embraced by those with the authority to shape public policy in Puerto Rico, unlocking the potential of everyone on the Island to drive the prosperity of Puerto Rican society.

Barriers and Recommendations

Every democratic society requires a free, highly competitive, and healthy market to facilitate economic freedom for all. The free market is founded on four essential pillars: individual liberties, the rule of law, private property rights, and limited government.[13] Puerto Rico needs public policy reforms that strengthen these pillars and eliminate existing barriers, ensuring that all individuals, regardless of socioeconomic status, have the opportunity to participate in the market without undue governmental interference or control.

Dignity and Prosperity

Many laws in Puerto Rico must be repealed or amended to halt the erosion of these pillars. Removing existing barriers will allow the Island’s residents to fully develop their capacity to contribute to economic and social well-being. Comprehensive public policy reform is essential, as the laws mentioned in this document create economic distortions and restrictions in the market; for example, occupational licenses, corporate subsidies or incentives, and certificates of need and convenience limit and restrict access for those who wish to participate in the market.

In contrast, labor laws and price control regulations affect those already operating in the market. For the 55 recommendations included in this document to have a balanced effect, they should be implemented simultaneously, as much as possible, rather than sequentially. A comprehensive approach that considers the interrelationships between the various components of the economy will ensure that the elimination of economic distortions created by the laws is consistent across all sectors; this will prevent the implementation of the measures from creating new distortions that end up benefiting some and harming others.

Occupational Licenses

Possible Actions

  • Approve legislation to:
    • Review and eliminate occupational licenses in Puerto Rico that do not serve the purpose of protecting public health and safety;
    • Standardize the evaluation of occupational license applications from individuals with criminal backgrounds;
    • Adopt the universal recognition of U.S. occupational licenses in Puerto Rico;
    • Consider and systematically accept or reject any petition or proposal for a new license based on criteria for protecting public health and safety.
  • Align Puerto Rico’s meritorious occupational licenses with the least burdensome requirements of equivalent licenses in the United States.

Occupational licenses are state regulations that set requirements for individuals to practice a specific trade or profession. These licenses function as a permit to work, as they prohibit individuals from working in their field without holding a license. The purported purpose of occupational licenses is to set minimum quality standards in professional practice to protect public health and safety (Timmons et al., 2022); for example, many jobs in the healthcare field require licenses due to the potential harm that subpar services could arguably cause to well-being and life.

Over the years, the requirement for occupational licenses has expanded to jobs that do not pose risks to health and safety, becoming a burden and a deterrent for those who wish to work—especially in low- and middle-income occupations—due to the combination of cost, effort, and time required to obtain an occupational license. Additionally, these onerous requirements often lead individuals to participate in the informal economy.[14] As a result, occupational licenses are reducing employment and increasing service costs for consumers by millions of dollars annually.[15]

Occupational regulations are also an obstacle for individuals with criminal records seeking to secure employment, earn an honest living, and reintegrate into free society in jurisdictions like Puerto Rico, where the issuance of occupational licenses is prohibited for individuals with criminal records. It is no surprise, then, that the crime recidivism rate in states that prohibit occupational licenses for individuals with criminal records—or impose high barriers to obtaining them—is 9%, compared to 2.6% in states that do not prohibit occupational licenses or have lower barriers.[16]

According to a study by the University of Puerto Rico, over 140 occupations are regulated on the Island, of which at least 131 currently have active occupational regulations.[17] In Puerto Rico, there are 34 occupational licenses required in fewer than 5 states, including 13 licenses that exist only on the Island (detailed in Appendix A).[18] This raises questions about the necessity of requiring licenses in Puerto Rico for occupations that, in most states, are not required—that is, which are practiced in all or nearly all jurisdictions in the United States without the need for regulation.[19]

Puerto Rico has, for too long, subordinated its own economy to United States industrial policy and fiscal incentives rather than pursue sustainable economic development beyond the shifting tides of federal policymaking or the disruptions caused by changes in incentives. Reforming occupational licensing is an action that policymakers in Puerto Rico have in their hands to stimulate the type of economic growth that would retain local workers and entrepreneurs, attract those who migrated back to the Island, and generate opportunities for prosperity stemming from the hard work of its people. This action would not need to depend on uncertain and unreliable federal policymaking and its consequences.

Occupational licensing reform has significant latent potential amid Puerto Rico’s current economic challenges. This potential lies in its combined effects of stimulating entrepreneurial spirit, transitioning work and workers from the informal to the formal economy, improving access to quality services for consumers, and reducing—if not reversing—the drain of human talent leaving the Island in pursuit of economic opportunities elsewhere. If, after all, Puerto Ricans can achieve prosperity in the states, they can do the same in Puerto Rico if given the chance.

Suggested Readings

Carrión-Tavárez, Á., Carpenter II, D. M., & Timmons, E. J. (2024, febrero). Unleashing potential, The burdens of occupational licensing and how it can be reformed in Puerto Rico. Institute for Economic Liberty. https://doi.org/10.53095/13584009

Curry, H. (2024, May 28). Louisiana governor signs landmark universal licensing reform into law. Goldwater Institute. https://www.goldwaterinstitute.org/louisiana-governor-signs-landmark-universal-licensing-reform-into-law/

Financial Oversight and Management Board for Puerto Rico. (2023, April). Restoring growth and prosperity. Vol. 3. https://oversightboard.pr.gov/fiscal-plans/

Trudeau, N., Timmons, E., & Anastasi, S. (2024, August). State occupational licensing index 2024. https://www.archbridgeinstitute.org/state-occupational-licensing-index-2024/

Nutritional Assistance Program

Possible Actions

  • Establish Supplemental Nutrition Assistance Program (SNAP) work requirements for able-bodied adults without dependents, aged 18 to 54.
  • Increase minimum income limits to align with current income levels of beneficiaries working 80 hours per month.
  • Implement a gradual reduction of nutritional assistance to facilitate workforce participation and income generation, while allowing beneficiaries to continue receiving nutritional assistance benefits.
  • Amend Ley Núm. 63 de 7 de mayo de 2015, según enmendada,  “Ley para la Organización y Desarrollo de Mercados Agrícolas Familiares en Puerto Rico” (Law No. 63 of May 7, 2015, as amended, “Puerto Rico Family Agricultural Markets Organization and Development Act”) and Reglamento 8775 de 22 de julio de 2016 “Reglamento para la Organización y Desarrollo de Mercados Agrícolas Familiares en Puerto Rico” (Regulation 8775 of July 22, 2016, “Regulation for the Organization and Development of Family Agricultural Markets in Puerto Rico”), to ensure they provide real benefits to participants in the Nutrition Assistance Program (NAP) and farmers on the Island. In addition, require the Administration for the Socioeconomic Development of the Family and the Department of Agriculture to publish an annual report on the performance of Mercados Agrícolas Familiares (Family Agricultural Markets).[20]

Puerto Rico has received federal funding for nutrition assistance, first under the Food Stamp Program and then NAP, since 1974. Likewise, other federal programs such as the Special Supplemental Nutrition Program for Women, Infants, and Children and the National School Lunch Program operate on the Island. It is alarming that, after almost 50 years of participating in these programs, Puerto Rico continues to experience high levels of food insecurity and poverty, as well as a considerably low labor force participation rate; and that this stagnation has perpetuated dependency.[21]

In Puerto Rico, there are families who have received more than half of their annual income from social assistance programs for generations. Many of these programs are designed to meet certain needs at a given time, such as situations of unemployment, temporary illness, or disability, rather than to provide permanent support. These and other programs aimed at low-income families “end after a number of months (e.g., unemployment) and even those that do not expire … are designed to provide only temporary benefits” (Lindner & Nichols, 2012, p. 1), particularly in the case of people able to work.

SNAP has a work requirement that should be established in Puerto Rico. Individuals ages 18-54, who do not have dependents, are not pregnant, and are subject to the general work requirements are known as able-bodied adults without dependents. These participants must work at least 80 hours a month or participate in a qualifying workfare training program to receive SNAP benefits for more than three months within a three-year period. The work requirement would facilitate the integration of eligible participants in Puerto Rico into the workforce, allowing them to earn income without completely losing their benefits.[22]

When the loss of benefits, tax payments, and employment-related expenses exceed the wages earned, a perverse incentive is created, leaving beneficiaries in a worse financial situation than when they were not working; this is known as the poverty trap. For decades, NAP has caused participants to perceive that the cost of working is too high, since they will lose benefits if they exceed the net income level. To combat food insecurity and prevent people from falling into the poverty trap, it is necessary to implement a gradual phase-out of benefits as income increases.

As of Fiscal Year 2022, 1,556,788 individuals in Puerto Rico were participating in NAP. Among adult participants, 2 out of 4 were age 18 through 59, and 89% under age 60 did not have a documented disability. On the Island, the number of able-bodied adults without dependents between the ages of 18 and 54 who do not have documented disabilities and are outside the working group is estimated to be approximately 266,000.[23] The work requirement would encourage these beneficiaries to enter the workforce[24] and fill the estimated shortage of 40,000 workers for federally funded recovery projects.[25]

Work is an important part of human activity; it is the source of the goods and services that satisfy our desires and aspirations. NAP participants whose opportunities to work have been conditioned by the limitations of this program for decades must have the freedom to work and earn a living for themselves and their families, either by choosing among the jobs available in the market or starting a business. This way, they could assert their economic freedom and overcome their dependency situation—getting out of the poverty trap—through their own efforts.[26]

Suggested Readings

Carrión-Tavárez, Á. (2023, September). From NAP to SNAP: A bridge to economic liberty for residents of Puerto Rico (an update). Institute for Economic Liberty. https://doi.org/10.53095/13584007

Rodríguez, J. L. (2024, April 8). Congress can help Puerto Rico escape the food stamp poverty trap. Newsweek. https://www.newsweek.com/congress-can-help-puerto-rico-escape-food-stamp-poverty-trap-opinion-1886973

Tax Burden

Possible Action

  • Amend Ley Núm. 1 de 31 de enero de 2011, “Código de Rentas Internas de Puerto Rico de 2011” (Law No. 1 of January 31, 2011, “Internal Revenue Code of Puerto Rico of 2011”), to reduce the tax burden on individuals and consider a cost-of-living or inflation adjustment in the taxation of individual income.[27]

The tax burden refers to the proportion of total personal income that residents of a given jurisdiction pay in property, personal income, consumption, or other taxes.[28] A high tax burden can restrict economic freedom by reducing workers’ available income and discouraging productive effort. An onerous tax system could even disincentivize economic activity, if individuals do not feel motivated to generate income. Additionally, it may lead to tax evasion and informality, which reduces the tax base and limits the resources available to the Government.

A fair fiscal structure and a reasonable tax burden, on the other hand, promote well-being, development, and prosperity in society. When workers retain a larger share of their income, they have greater control over their resources and can make decisions that improve their quality of life. A light tax burden provides individuals with more freedom to enjoy their income in the present and a greater capacity to save for the future. Puerto Rico needs a tax system that encourages voluntary compliance, formalizes the economy,[29] and maximizes economic freedom opportunities for all.

Suggested Readings

Bramwell, J. (2024, April 9). How the 50 states rank by tax burden. CPA Practice Advisor. https://www.cpapracticeadvisor.com/2024/04/09/how-the-50-states-rank-by-tax-burden/103495/

Durante, A. (2021, May 21). Reviewing recent evidence of the effect of taxes on economic growth. Tax Foundation. https://taxfoundation.org/research/all/federal/reviewing-recent-evidence-effect-taxes-economic-growth/

Inland Revenue Authority of Singapore. (n.d.). Individual Income Tax rates. https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/tax-residency-and-tax-rates/individual-income-tax-rates

McCann, A. (2024, April 2). Tax burden by state. Wallet Hub. https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494

PWC. (2024, May 6). Singapore Individual - Taxes on personal income. https://taxsummaries.pwc.com/singapore/individual/taxes-on-personal-income

Property Registry

Possible Actions

  • Eliminate the current backlog in property registrations.
  • Consider moving property registration to a semi-private blockchain, where notaries would confirm all property purchase and financing closings to streamline the process, create efficiencies, and reduce administrative costs. The blockchain registry would be updated almost instantly at each closing.
  • Make the necessary procedural changes to establish an average of 15 days for new property registrations, including the implementation of a fully digital process.
  • Review the current requirements to reduce the cost of registering a property by 50%.
  • Update property values based on their most recent sale or the appraisal used for financing or refinancing, with the goal of promoting fairer tax contributions and balancing property owners’ tax burdens.

Friedrich A. Hayek stated that “the system of private property is the most important guarantee of freedom, not only for those who own property, but scarcely less for those who do not” (1944/2006, p. 108). Similarly, Milton and Rose Friedman (1998) added that property rights themselves “are the most basic of human rights and an essential foundation for other human rights.” Private property is, therefore, fundamental for individuals to achieve economic self-sufficiency and is essential for upward social mobility.

The property registry must be a robust and efficient system that protects private property and facilitates transactions in a fast and secure manner. The time required to submit a deed should be as short as possible, and the requirements should be as simple and affordable as possible to expedite investments and transactions. For comparison, the average cost of processing a real estate deed (as a percentage of per capita income) is 0.24% in the United States, whereas in Puerto Rico, it is 10%. This disparity highlights the need for Puerto Rico’s property registry to be competitive with those of other markets.[30]

Suggested Readings

Carrión-Tavárez, Á. (Ed. & Trans.). (2023). Doing business North America 2022 report (4th ed., Compendium) (Center for the Study of Economic Liberty). Arizona State University. https://doi.org/10.53095/13583003

Financial Oversight and Management Board for Puerto Rico. (2023, April). Restoring growth and prosperity. Vol. 3. https://oversightboard.pr.gov/fiscal-plans/

Lara, J. (2022, 11 de enero). The Right to Private Property. Instituto de Libertad Económica. https://doi.org/10.53095/13582006

Ease of Doing Business

The ease of doing business refers to the extent to which the legal system and public policy are conducive to the creation and operation of businesses in a given jurisdiction. This concept is studied scientifically to determine whether a regulatory framework facilitates or hinders business activity. Reports and indices on ease of doing business are, consequently, of great importance, as their rigorous analysis of indicators is used by the government to make public policy decisions and by the private sector to determine where to invest.[31]

A higher score and ranking in ease of doing business reports and indices indicate better regulatory quality, greater compliance efficiency, and stronger protection of private property rights. The data provided by these indices are also considered important for evaluating living standards and overall well-being in a jurisdiction. This is because there is a reciprocal relationship between private investment, individuals’ integration into productive activiy—whether by working or starting a business—socioeconomic development, and poverty reduction.[32]

The Center for the Study of Economic Liberty at Arizona State University published the Doing Business North America 2022 report, in which it scored and ranked 83 cities in the United States. The categories measured were “Starting a Business,” “Employing Workers,” “Getting Electricity,” “Paying Taxes,” “Land and Space Use,” and “Resolving Insolvency.” San Juan was ranked as the most difficult city for doing business. The study’s variables were distributed as follows: 2% federal,[33] 70% state, 4% county,[34] and 24% municipal;[35] therefore, San Juan’s results can be regarded as reflective of Puerto Rico as a whole.

Starting a Business

Possible Actions

  • Eliminate requirements for starting businesses in Puerto Rico that do not exist in the 10 jurisdictions with the highest ease-of-doing-business rankings in the United States.
  • Harmonize state and municipal requirements to avoid duplication. What is required by a state entity should not be required by other entities involved in the permitting process.
  • Allow applicants to use third-party certifications to meet pre-established requirements.
  • Consider implementing a trust-based system that allows applicants to declare compliance with all requirements to start a business and begin operations immediately. Regulatory entities would have a specified period to review compliance. Non-compliance by the entrepreneur could result in actions such as permit cancellation, fines, and business closure.
  • Establish a maximum timeframe for proponents to receive a response to their permit application.
  • Measure and report monthly metrics on business permit approvals.
  • Create categories based on the type of business, complexity, and regulatory needs.
  • Repeal Ley Núm. 8 de 16 de junio de 2021, “Para enmendar el Artículo 2.05 de la Ley Núm. 26-2017, Ley de Cumplimiento con el Plan Fiscal; Días feriados” (Law No. 8 of June 16, 2021, “To amend Article 2.05 of Law No. 26-2017, Fiscal Plan Compliance Act; Holidays”), to increase government service days for business creation.[36]

Commercial permits have been a persistent topic in discussions about Puerto Rico’s regulatory burden. The difficulty of obtaining permits for legitimate business activities has been described as a proverbial brick wall for entrepreneurship, especially for the establishment and development of MSMEs. Over the years, laws considered to be reforms have been enacted; however, these have neither alleviated the burden of requirements nor expedited the permitting process. What is needed is a change in public policy based on a thorough questioning and analysis of the necessity of the requirements and the efficiency of the processes.[37]

Employing Workers

Possible Actions

  • Amend Ley Núm. 4 de 26 de enero de 2017, “Ley de Transformación y Flexibilidad Laboral” (Law No. 4 of January 26, 2017, “Labor Transformation and Flexibility Act”), to eliminate the probationary period and, thereby, increase the hiring of regular employees by reducing cost and risk.[38]
  • Amend Ley Núm. 47 de 21 de septiembre de 2021, “Ley de Salario Mínimo de Puerto Rico” (Law No. 47 of September 21, 2021, “Puerto Rico Minimum Wage Act”), to eliminate the Comisión Evaluadora del Salario Mínimo (Minimum Wage Evaluating Commission) and establish an annual minimum wage in proportion to the per capita income, based on the average of the 83 cities in the United States included in the Doing Business North America 2022 study.[39] This would prevent job losses, reduction of working hours, loss of benefits, and price increases in products and services, while stimulating the creation of entry-level jobs.[40]
  • Repeal Ley Núm. 60 de 27 de enero de 2018, “Para enmendar el Artículo 6 de la Ley Núm. 180 de 1998, Ley de Salario Mínimo, Vacaciones y Licencia por Enfermedad de Puerto Rico” (Law No. 60 of January 27, 2018, “To amend Article 6 of Law No. 180 of 1998, Puerto Rico Minimum Wage, Vacation, and Sick Leave Act”), to discourage absenteeism and inefficiency in employment.[41]
  • Repeal Ley Núm. 106 del año 2024, “Ley Contra el Discrimen por Razón de Estilos de Cabello” (Law No. 106 of 2024, “Anti-Hair Style Discrimination Act”), to prevent the government from imposing aesthetic judgments and to promote the hiring of employees without distinction of race, without increasing burdens and risks for employers.[42]
  • Amend Ley Núm. 80 de 30 de mayo de 1976, “Ley Sobre Despidos Injustificados” (Law No. 80 of May 30, 1976, “Unjustified Dismissal Act”), to establish a reasonable maximum limit for monetary compensation for unjustified dismissals, in order to alleviate the economic burden, particularly for micro, small, and medium-sized businesses in Puerto Rico.
  • Review the relevant regulations of the Departamento del Trabajo y Recursos Humanos (Department of Labor and Human Resources) so that, in dismissal cases where an employee handbook with clear definitions of duties exists, the employee has the burden of proving that the dismissal was unjustified.
  • Review and evaluate practices in the 83 cities included in the Doing Business North America 2022 report regarding sick leave, maternity leave, vacation policies, and additional benefits and protections. In more than 70 of these jurisdictions, benefits are market-driven and generally higher than those established by law in Puerto Rico. The goal is to promote better benefits for employees through competitiveness, without undermining job creation or imposing onerous conditions on micro, small, and medium-sized businesses in Puerto Rico.[43]

Hiring workers in Puerto Rico is the most burdensome compared to the 83 jurisdictions included in Doing Business North America 2022. The State must protect the fundamental rights of workers but also allow the market to self-regulate and determine what incentives to offer, beyond the essential benefits guaranteed by law; in this way, investment, business creation and development, as well as labor mobility, are promoted. Benefits could vary according to the industry, responding to the diverse needs of employees.

Employers and employees should have the freedom to determine the benefits that are desirable and relevant to them. Some industries employ university students or young people, for whom a higher hourly wage may be more attractive than other benefits. In other industries, employees might value benefits such as on-site childcare or days off to attend their children’s events. When there is economic and market freedom, workers and businesses can better address their specific interests and needs and even exceed the benefits established by law.

Getting Electricity

Possible Actions

  • Reduce the cost of electricity per kWh in commercial properties, using the U.S. average as a benchmark.
  • Evaluate reducing the cost per kWh in commercial properties by paying, fully or partially, the debt with the Puerto Rico Electric Power Authority using the General Fund, based on additional reductions obtained by paying it in full at present value.
  • Ensure compliance with the targets established for the System Average Interruption Duration Index (SAIDI) and the System Average Interruption Frequency Index (SAIFI) by the Negociado de Energía de la Junta Reglamentadora de Servicio Público (Energy Bureau of the Public Service Regulatory Board) and LUMA, pursuant to the resolution issued in case NEPR-AP-2020-0025.
  • Direct the Negociado de Energía (Energy Bureau) to establish regulations and open-access costs for transmission and distribution lines to provide market certainty and promote private investment.

Obtaining electricity is crucial for the ease of doing business, as affordable and reliable energy is essential for the daily operation of any company. Without an efficient electrical infrastructure, organizations face higher operating costs. Puerto Rico ranked last in terms of accessibility, reliability, and cost of electricity in the overall study index. The well-known inefficiencies and high costs of electricity in Puerto Rico discourage private investment and entrepreneurship and are an obstacle to growth, especially for MSMEs on the Island.

Paying Taxes

Possible Actions

  • Amend Ley Núm. 161 de 1 de diciembre de 2009, “Ley para la Reforma del Proceso de Permisos de Puerto Rico” (Law No. 161 of December 1, 2009, “Puerto Rico Permitting Process Reform Act”), to simplify the tax system and the filings required of organizations.
  • Amend Ley Núm. 1 de 31 de enero de 2011, “Código de Rentas Internas de Puerto Rico de 2011” (Law No. 1 of January 31, 2011, “Puerto Rico Internal Revenue Code of 2011”), to reduce the tax burden on corporations using as a benchmark the average of the 83 cities included in the Doing Business North America 2022 study.
  • Create a collaborative agreement between the Department of the Treasury and the Department of Labor and Human Resources to consolidate and simplify the filing of payroll tax returns and employee wage income tax returns.
  • Reduce the individual income tax rate using as a benchmark the 83 cities included in the Doing Business North America 2022 study.

Puerto Rico has the second highest corporate tax rate in the world, at 37.5%, while the combined federal and state corporate tax rate in the United States is 25.77%.[44] This tax environment acts as a deterrent for local investors and represents a competitive disadvantage in attracting private investment from the United States and other countries. An efficient, fair, and simple tax system is vital for the ease of doing business and economic growth, as it allows organizations to better plan their finances and operate more effectively.[45]

Land and Space Use

Possible Actions

  • Reduce the number of procedures required to transfer real property using as a benchmark the 83 cities included in the Doing Business North America 2022 study.
  • Reduce the cost of processing a deed (as a percentage of per capita income) using as a benchmark the 83 cities included in the Doing Business North America 2022 study.
  • Eliminate Sección 8.5.3.1 Espacios mínimos requeridos del “Reglamento Conjunto para la Evaluación y Expedición de Permisos Relacionados al Desarrollo, Uso de Terrenos y Operación de Negocios” de 2 de enero de 2021 (Section 8.5.3.1 Minimum Required Spaces from the “Joint Regulation for the Evaluation and Issuance of Permits Related to Development, Land Use, and Business Operations” of January 2, 2021), to allow applicants to determine the minimum number of parking spaces to be provided for motor vehicles.

Puerto Rico also ranked last in land and space use. This category includes the entire sequence of procedures necessary for a company to acquire property, transfer the property title to the buyer’s name, and use it to expand its business or as collateral for obtaining loans. It is necessary to reduce the cost of processing a deed and simplify the processes for transferring real estate ownership on the Island. Improving the efficiency of real estate processes would benefit individuals and businesses and encourage investment.

Suggested Readings

Bourne, R. (2022). CATO handbook for policymakers. The minimum wage. CATO Institute. https://www.cato.org/cato-handbook-policymakers/cato-handbook-policymakers-9th-edition-2022/minimum-wage

Carrión-Tavárez, Á. (Ed. & Trans.). (2023). Doing business North America 2022 report (4th ed., Compendium). Center for the Study of Economic Liberty at Arizona State University. https://doi.org/10.53095/13583003

Financial Oversight and Management Board for Puerto Rico. (2023, April). Restoring growth and prosperity. Vol. 3. https://oversightboard.pr.gov/fiscal-plans/

Guillama Capella, M. (2023, 1 de octubre). Jenniffer González propone saldar de un solo pago el principal de la deuda de la AEE. El Nuevo Día. https://www.elnuevodia.com/noticias/politica/notas/jenniffer-gonzalez-propone-saldar-de-un-solo-pago-el-principal-de-la-deuda-de-la-aee/

Joffe, M. (2024, 7 de agosto). El alza del salario mínimo puede perjudicar a la economía de Puerto Rico. El Nuevo Día. https://www.elnuevodia.com/opinion/punto-de-vista/el-alza-del-salario-minimo-puede-perjudicar-a-la-economia-de-puerto-rico/

Neumark, D., & Shirley, P. (2022, March). Myth or measurement: What does the new minimum wage research say about minimum wages and job loss in the United States? (Working Paper No. 28388). https://doi.org/10.3386/w28388

Puerto Rico Energy Bureau. (2020). Final resolution and order on performance targets for LUMA Energy LLC and LUMA Energy Servco, LLC. NEPR-AP-2020-0025. https://energia.pr.gov/wp-content/uploads/sites/7/2024/01/20240126-AP20200025-Final-Resolution-and-Order.pdf

Stansel, D., Torra, J., McMahon, F., & Carrión-Tavárez, Á. (2023). Economic freedom of North America 2023. Fraser Institute. https://doi.org/10.53095/13583008

Inventory Tax

Possible Actions

  • Amend Ley Núm. 107 de 13 de agosto de 2020, “Código Municipal de Puerto Rico” (Law No. 107 of August 13, 2020, “Puerto Rico Municipal Code”), to eliminate the inventory tax that businesses are required to pay on unsold stored merchandise; this would reduce the cost of doing business in Puerto Rico and lower product prices for consumers.
  • Allocate to municipalities the full amount of funds corresponding to the inventory tax using the General Fund, which receives contributions from income and excise taxes.

Municipalities in Puerto Rico levy an inventory tax that puts businesses and consumers on the Island at a disadvantage. This tax applies to the value of inventories in the form of finished products (ready for sale), work in progress (partially assembled products), and raw materials. Revenues from this tax total approximately $237 million.[46] Due to this tax, businesses maintain inventory levels below optimal, leading to consumer product shortages, higher prices, and lower competitiveness compared to competitors established in other U.S. jurisdictions.

The negative impact of this tax on the economic freedom of Puerto Rico residents, when weighed against its effect on the consolidated budget of the Government, makes it an unnecessary and excessively burdensome measure. As has been empirically demonstrated in multiple instances and locations, lowering taxes reduces evasion and increases revenues. The inventory tax has been eliminated in 36 U.S. states,[47] and its elimination in Puerto Rico would increase inventories, improve competitiveness, and lower prices, ultimately generating higher contributions from income and sales taxes.

Suggested Readings

Financial Oversight and Management Board for Puerto Rico. (2023, April). Restoring growth and prosperity. Vol. 3. https://oversightboard.pr.gov/fiscal-plans/

Joffe, M. (2023). Inventory Tax Adds to The Burden of Doing Business in Puerto Rico. Instituto de Libertad Económica para Puerto Rico. https://institutodelibertadeconomica.org/en/publications/inventory-tax-adds-to-the-burden-of-doing-business-in-puerto-rico/

López, S. L. (2024, March 7). Eliminating inventory tax would increase merchandise on shelves. The News Journal. https://www.theweeklyjournal.com/business/eliminating-inventory-tax-would-increase-merchandise-on-shelves/article_d7d4aeee-dc98-11ee-81d0-8f88dbadcfab.html

Price Controls of Private Parking Lots

Possible Action

  • Repeal Ley Núm. 120 de 7 de junio de 1973, “Ley para Regular el Negocio de Áreas para el Estacionamiento Público de Vehículos de Motor” (Law No. 120 of June 7, 1973, “Act to Regulate the Public Motor Vehicle Parking Business”), to encourage investment, innovation, and competitiveness in the parking business, which will result in better service quality and more competitive prices.

The Government of Puerto Rico considers the private parking business to be of public interest; thus, the rates that owners and operators can charge are regulated. This government intervention discourages economic activity, reduces private investment and innovation, restricts supply, limits opportunities for new market entrants, and generates operational inefficiencies. As a result, the lack of new offerings keeps the existing supply in suboptimal conditions, limiting the sector’s growth potential and reducing the quality of service for consumers.

Parking businesses in Puerto Rico are private property and, as such, should operate without undue government intervention, allowing owners to set rates based on their operational costs and market conditions. The role of the State is to “create conditions in which competition will be as effective as possible, to supplement it where it cannot be made effective” (Hayek, 1944/2006: 40). State intervention through price controls imposes restrictions that contradict this principle. In a competitive market, prices naturally adjust to supply and demand conditions.

Suggested Readings

Bourne, R. (2024, 29 de mayo). ¿Por qué cuarenta siglos de controles de precios? Elcato.org. https://www.elcato.org/por-que-cuarenta-siglos-de-controles-de-precios

Rockoff, H. (n.d.) Price controls. The Library of Economics and Liberty. https://www.econlib.org/library/enc/pricecontrols.html

Price Controls of Freight Transportation

Possible Action

  • Amend Ley Núm. 109 de 28 de junio de 1962, “Ley de Servicio Público de Puerto Rico” (Law No. 109 of June 28, 1962, “Puerto Rico Public Service Act”) and Reglamento 9358 de 7 de febrero de 2022, “Código de Reglamentos del Negociado de Transporte y Otros Servicios Públicos” (Regulation 9358 of February 7, 2022, “Regulatory Code of the Bureau of Transportation and Other Public Services”), to eliminate the absolute control of freight transportation rates on the Island, thereby allowing carriers and business owners to reach free and voluntary agreements; this would encourage entrepreneurship and innovation in freight transportation and improve prices for consumers.

Only two U.S. jurisdictions regulate freight transportation prices, and Puerto Rico is one of them. The Public Service Commission is the entity that controls the prices of general freight transportation, aggregate freight, specialized freight, and all other modalities under its jurisdiction. Freight transportation price regulation increases costs, lowers service quality,[48] and forces businesses to maintain inventories above optimal levels due to the lack of incentives to improve process efficiencies.

In Puerto Rico, rates are 2.5 times higher than in most U.S. jurisdictions. This, in addition to stifling innovation due to the absence of incentives, raises the cost of goods, particularly groceries. Even worse, the regulation of freight transportation prices on the Island creates market rigidity through bureaucratic processes that prevent economic agents from responding and adapting to emergencies and unforeseen situations, such as hurricanes or pandemics.[49] This inefficiency results in higher operating costs, affecting both businesses and consumers.

Puerto Rico’s fixed-rate system has repeatedly proven inefficient, as seen when gasoline prices suddenly increase. When fuel prices rise, demand decreases, affecting the work of fuel carriers. This type of transportation lacks the flexibility to carry other products, as it is designed exclusively for fuel. In such situations, carriers and business owners could reach free and voluntary agreements based on market fluctuations without affecting service or supply.[50]

The Public Service Commission’s rates could be retained as a guideline and applied only in individual transactions. Puerto Rico has a significant number of freight transportation companies and businesses that contract their services. In such a broad market, participants should have the freedom to negotiate and agree on mutually beneficial rates without government intervention. Ultimately, the State should not interfere with or impose conditions on contracts freely and voluntarily agreed upon by independent parties.

Suggested Readings

Bourne, R. (2024, 29 de mayo). ¿Por qué cuarenta siglos de controles de precios? Elcato.org. https://www.elcato.org/por-que-cuarenta-siglos-de-controles-de-precios

Ellig, J. (2020, December 14). Forty years after surface freight deregulation. The Regulatory Review. https://www.theregreview.org/2020/12/14/ellig-forty-years-after-surface-freight-deregulation/

Moore, T. G. (s.f.). Moving ahead. Stanford University. https://web.stanford.edu/~moore/MovingAhead.html

Moore, T. G. (s.f.). Trucking deregulation. The Library of Economics and Liberty. https://www.econlib.org/library/Enc1/TruckingDeregulation.html

Rockoff, H. (s.f.). Price controls. The Library of Economics and Liberty. https://www.econlib.org/library/Enc/PriceControls.html

Distribution Contracts

Possible Action

  • Amend Ley Núm. 75 de 24 de junio de 1964 (según enmendada), “Ley de Contratos de Distribución” (Law No. 75 of June 24, 1964, as amended, “Distribution Contracts Act”), to reduce the time and costs associated with resolving contractual disputes under Law 75 and to allow principals and distributors to reach free and voluntary agreements.

The Distribution Contracts Act regulates relationships between principals or grantors[51] and their distributors in Puerto Rico, with the aim of protecting local distributors from arbitrariness. Article 2 of this law states the following: Notwithstanding the existence of a clause in a distribution contract reserving to the parties the unilateral right to terminate the existing relationship, no principal or grantor may terminate the relationship, or directly or indirectly take any action to undermine it or refuse to renew the contract upon its normal expiration, except for just cause (Law No. 75, 1964, p. 2).

The requirement to establish “just cause” compels the principal or grantor to demonstrate, in court, that there has been a breach of the essential obligations of the contract, or some action or omission by the distributor that adversely and substantially affected their interests. The government’s duty under the Rule of Law is neither to favor nor to disfavor either party but to uphold contracts entered into freely and voluntarily within a free market, both efficiently and swiftly. Under no circumstance should the state act as both judge and party, using the law to benefit or harm any party in a contract.

Act No. 75 of 1964 presupposes an imbalance between the parties and grants advantages to the distributor to achieve a proportional balance between them. It also seeks to prevent the principal or grantor, after a distributor has made a significant economic investment, from establishing relationships with another distributor in search of efficiencies; nonetheless, the pursuit of balance should not limit the entry of new players into the distribution business or reduce competition for brands in the free market. Furthermore, the Government should aim for the parties to be able to reach any type of agreement—including exclusivity agreements—if they so desire.

For those who choose to enter into contracts under the provisions of Law 75, it is proposed to modify the provisions related to the determination of “just cause” and the compensation of the distributor. To ensure that the parties have a clearer and more reliable understanding of their situation, as well as to reduce the time and costs of resolving any contractual dispute, the definition of profit and all factors for determining the amount of compensation should be eliminated, except for the cost of goods, parts, pieces, accessories, and supplies that the distributor has in stock and from which it cannot profit (Law No. 75, 1964, p. 3).

Ultimately, it is necessary to ensure that the rigidity of this regulation does not negatively affect the market, due to the high cost that principals or grantors might face in introducing their products in Puerto Rico and modifying or terminating their contracts with their local distributor. As with price controls of freight transportation, it is essential to always promote free and voluntary agreements between the parties, without State intervention. This approach fosters a market that is as competitive and innovative as possible, allowing consumers on the Island to access a greater variety of products at the best prices.

Suggested Readings

Buxeda, N., & Pérez-Rentas, A. (2024, May 3). Puerto Rico’s Dealers Act: What every principal should know before selling products or services in Puerto Rico. DLA Piper. https://www.dlapiper.com/en-ie/insights/publications/2024/05/puerto-ricos-dealers-act

Escalera-Rodríguez, R. (2016, October 13). Puerto Rico: Two interesting articles about distributorship contracts. International Distribution Institute. https://www.idiproject.com/news/puerto-rico-two-interesting-articles-about-distributorship-contracts/

Lipsky, Jr., A. B. (2017, March 6). Protecting consumers by promoting competition. Federal Trade Commission. https://www.ftc.gov/enforcement/competition-matters/2017/03/protecting-consumers-promoting-competition

Inspection of Containers

Possible Action

  • Eliminate Reglamento 8837 de 18 de noviembre de 2016, “Reglamento para implementar los medios necesarios que garanticen un flujo eficiente del tráfico comercial en la inspección de los contenedores de carga entrando para mejorar la seguridad de las instalaciones portuarias y/o de otra manera para implementar la política pública que el Gobierno de Puerto Rico delegó en la Autoridad de los Puertos” (Regulation 8837 of November 18, 2016, “Regulation to Implement the Necessary Measures to Ensure Efficient Commercial Traffic Flow in the Inspection of Incoming Cargo Containers to Improve Port Facility Security and/or Otherwise Implement the Public Policy Delegated by the Government of Puerto Rico to the Ports Authority”), to improve efficiency in import processes and promote more competitive prices for consumers.

In Puerto Rico, 100% of the containers arriving on the Island are inspected. Since its implementation in 2009, universal container inspection has cost over $20 million annually, which has a significant impact on Puerto Rican consumers within the value chain. The inspections are carried out by a continental U.S. company, so the money collected leaves the Island without providing an economic benefit.[52] This practice has become an additional tax for consumers, without providing value to society, as most of the money generated does not go to the Department of the Treasury but to a private company.

In 2019, the Office of the Comptroller published an audit report as a result of the investigation of a complaint related to the container inspection contract. The report, addressed to the governor and the presidents of the Senate and the House of Representatives of Puerto Rico, revealed that two amendments to the container inspection contract contain unconscionable clauses that require payment for 100% of the containers, even if some have not been scanned due to situations such as power outages, temporary system failures, long waiting lines for container inspection, among others (2019, p. 5).[53]

Suggested Readings

Baker McNeill, J. (2008, September 4). 100 percent cargo container scanning: A global disaster. The Heritage Foundation. https://www.heritage.org/homeland-security/report/100-percent-cargo-container-scanning-global-disaster

Díaz, M. (2016, 31 de octubre). Tribunal declara ilegal cargo por inspección de mercancía en los muelles. El Nuevo Día. https://www.elnuevodia.com/negocios/empresas-comercios/notas/tribunal-declara-ilegal-cargo-por-inspeccion-de-mercancia-en-los-muelles/

Díaz, M. (2016, 1 de noviembre). Continuarán inspeccionando los furgones. Pese a revés judicial, Puertos insiste en revisar la carga marítima que entra a la Isla. El Nuevo Día. https://www.pressreader.com/puerto-rico/el-nuevo-dia1/20161101/281509340740700

Certificates of Need and Convenience

Possible Action

  • Repeal Ley Núm. 2 de 7 de noviembre de 1975, “Ley de Certificados de Necesidad y Conveniencia” (Law No. 2 of November 7, 1975, “Certificates of Need and Convenience Act”), to foster private investment, competitiveness, innovation, higher quality, and better prices in the healthcare sector.

In Puerto Rico, it is mandatory to request and obtain a certificate of need and convenience granted by the Secretary of Health before constructing or acquiring a health facility; offering or developing a new health service; making capital investments of $500,000 or more in an existing health facility; or acquiring highly specialized medical equipment valued at $250,000 or more.[54] These certificates were conceived to adequately address the health needs of the population; nonetheless, their effect has been to restrict services, harming those who wished to help.

The certificates of need and convenience are, by nature, anti-competitive because they discourage private investment, thereby reducing diversity and innovation in the market. Limiting supply increases prices and reduces the quality of available services. When, on the contrary, private investment in health services is promoted based on market forces and the principles of supply and demand, more and better options are provided to citizens, and the risk of individuals with direct market interests controlling access in their area to limit competition is reduced.[55]

Ley Núm. 2 places “the orderly planning” of facilities and “the costs of health services” (1975, p. 1) in the hands of a secretary—a central authority—in the Government. This turns the official into a censor,[56] someone with the power to interfere in the vital activity of the market and to decide for entrepreneurs and consumers what investments and services are needed. It also presumptuously assumes that this official is superior to the rest of society, as it practically grants them the ability to choose for others where to go, whom to buy from, and how much to pay for a needed health product or service.

In the United States, 17 states do not have a certificate of need law.[57] Between 2022 and January 2024, 23 jurisdictions modified their certificate of need laws, mostly to make them more flexible or to exclude specific facilities.[58] Some of these legislative actions—such as those in Florida and Montana—exempted practically all facilities from the certificate requirement.[59] This trend towards the flexibilization or elimination of the certificates of need reflects a shift towards deregulation and market liberalization in response to the demand for a more efficient and competitive healthcare system.

Suggested Readings

Americans for Prosperity. (2024). Fact check: Certificate of need laws and rural health care. https://americansforprosperity.org/wp-content/uploads/2024/03/AFPF-CON-FactCheck.pdf

Galewitz, P., Sausser, L., & Chang, D. (2023, April 26). How a 2019 Florida law catalyzed a hospital-building boom. KFF Health News. https://kffhealthnews.org/news/article/florida-hospital-building-boom-2019-deregulation-law/

Goldwater Institute. (2024?). What is certificate of need? https://www.goldwaterinstitute.org/con-video-explainer/

Mitchell, M. D. (2021, May 21). Certificate-of-need laws: How they affect healthcare access, quality, and cost. Mercatus Center George Mason University. https://www.mercatus.org/economic-insights/features/certificate-need-laws-how-they-affect-healthcare-access-quality-and-cost

National Conference of State Legislatures (2024, February 26). Certificate of need state laws. https://www.ncsl.org/health/certificate-of-need-state-laws

State Policy Network. (2021, April 1). Certificate-of-need laws: Why they exist and who they hurt. https://spn.org/articles/certificate-of-need-laws/

Corporate Subsidies and Incentives

Possible Actions

  • Amend Ley Núm. 60 de 1 de julio de 2019, “Código de Incentivos de Puerto Rico” (Law No. 60 of July 1, 2019, “Puerto Rico Incentives Code”), to eliminate any subsidies and incentives that are not of strategic importance to the Island or that do not demonstrate, through empirical data and objective evidence, a return on investment and that the market does not incentivize naturally and autonomously.
  • Require the Department of the Treasury to include performance and fiscal cost metrics for corporate incentives in its annual tax expenditure report.

Studies have shown that general tax cuts are more beneficial to the State than incentive programs. The Tax Expenditure Report for Tax Year 2023 revealed that Puerto Rico forewent over $30.413 billion due to the tax credits and incentives granted. Specifically, this figure is distributed as follows: $5.2309 billion (17.20%) from individual income tax; $22.222 billion (73.07%) from corporate income and earnings tax; $2.3534 billion (7.74%) from sales and use tax; and $606.7 million (1.99%) from excise taxes.

While it is true that these revenues cannot be guaranteed, as the economic activity may not materialize in the absence of the incentive, this demonstrates the need to ensure that the incentive provides the expected return on investment and is focused on strategic development areas for the Island; otherwise, incentives can act as unjustified subsidies, leading to cronyism, favoritism, and political patronage. It is essential, therefore, to define strategic development areas and establish monitoring and evaluation mechanisms to measure the effectiveness of the incentives and their real impact on the economy.

There is a significant difference between subsidies and corporate incentives. Subsidies use public funds directly to complement or finance private investment. In contrast, incentives consist of forgoing revenue; that is, reducing the tax burdens imposed on investment and economic activity. The Government must ensure that subsidies address an urgent need of a strategic, health-related, or public safety nature in Puerto Rico. Subsidies should be granted with the utmost transparency and under the strictest scrutiny, as taxpayer money is being used.

Incentives, on the other hand, should be used solely for areas previously identified as essential in the Island’s strategic and development plan. The economic activity of basic goods and services should not receive incentives. It is crucial that incentives are directed to sectors that promote innovation, job creation, and sustainable economic growth. Additionally, there must be a rigorous system of evaluation and monitoring to ensure that these incentives generate the expected benefits and do not become a strain on public resources.

In Puerto Rico, subsidies and incentives have been used to try to offset the negative effects of laws and regulations such as those mentioned in this report. The State’s regulatory overreach cause economic distortions and market failures, affecting the efficiency of organizations and limiting economic growth and job creation. To correct this, it is necessary to implement public policies aimed at reducing state intervention, streamlining processes, and fostering a more competitive environment that allows entrepreneurs to thrive without the need for excessive subsidies and incentives.

Suggested Readings

Department of the Treasury Office of Economic and Financial Affairs. (2022, March). Puerto Rico tax expenditure report for tax year 2023. https://hacienda.pr.gov/sites/default/files/ter23_version_final_5-abril-2022.pdf

Edwards, C. (2024, May 20). Business subsidies and state tax climates. CATO Institute. https://www.cato.org/blog/business-subsidies-state-tax-climates

González, J. (2019, 22 de septiembre). Un hueco de $20,614 millones. El Nuevo Día. https://www.pressreader.com/puerto-rico/el-nuevo-dia1/20190922/281505047935988

Ruger, W., & Sorens, J. (2018, September 24). Tax incentives’ bipartisan folly. CATO Institute. https://www.cato.org/commentary/tax-incentives-bipartisan-folly

Sobel, R. S. (2024, January 1). Who really gains from billions in economic development incentives? The Library of Economics and Liberty. https://www.econlib.org/library/columns/y2024/sobeldevelopmentincentives.html

Municipal Businesses

Possible Action

  • Amend Ley Núm. 107 de 13 de agosto de 2020, “Código Municipal de Puerto Rico” (Law No. 107 of August 13, 2020, “Puerto Rico Municipal Code”), to prohibit municipalities from using public funds to create, acquire, sell, and engage in any commercial activities related to the operation and sale of businesses and franchises, to prevent undue and unfair competition with the private sector.

Municipalities in Puerto Rico have the authority to acquire, establish, operate, and sell businesses and commercial franchises. Municipalities may manage all types of for-profit businesses or corporate entities using public funds. Furthermore, corporate entities owned or operated by municipalities are exempt from paying duties, licenses, tariffs, and taxes. This type of legislation facilitates the misappropriation of public funds, nepotism, cronyism, and corruption, while also deterring private investment and undermining fair competition and market efficiency.[60]

Public funds should not be used to enable the Government to compete with private businesses—major contributors to public revenue—in offering goods and services that the private sector is capable of providing. Even less should they be used to allow the Government to operate in the market under unequal conditions, constituting unfair competition. Economic agents should consist of private entities engaging in agreements and exchanges freely and voluntarily, in response to market needs. The State should focus on its role as a regulator, implementing only the measures strictly necessary to ensure a level playing field.

Suggested Readings

Meléndez, M. (2018, November 12). Why are local governments competing with private business? Libertas Institute. https://libertas.org/op-eds/why-are-local-governments-competing-with-private-business/

Milton, R. (1977, November 5). Government competition with industry. The Heritage Foundation. https://www.heritage.org/government-regulation/report/government-competition-industry

Government Size

Possible Actions

  • Gradually decrease government employment as a percentage of total state employment by promoting business creation, to increase opportunities for better jobs in the private sector.
  • Reduce the number of state agencies based on a comparative analysis with other jurisdictions, to lower overall government spending as a percentage of Puerto Rico’s personal income and increase efficiency in government services.

Puerto Rico has the highest number of government employees as a percentage of total employment among all US jurisdictions. As of May 2024, the Island had 166,122 positions filled in state and local government, including career, trust, and other positions. This figure, which equates to approximately 510 public employees per 10,000 residents, suggests that the Island’s historically low labor force participation rate—among the lowest in the world—is largely attributable to persistently low participation in the private sector.

Given that the Island’s nominal per capita gross domestic product is approximately 25.7% lower than that of Mississippi—the lowest of the 50 states—the Government of Puerto Rico should aim to reduce public employment levels to around 379 employees per 10,000 residents. This reduction could be achieved through natural attrition,[61] without the need for direct layoffs, and as a result of implementing the recommendations in this report. Removing the barriers that have restricted economic activity for decades would stimulate the creation of businesses and jobs in the private sector.[62]

Economic freedom diminishes as public employment expands beyond what is necessary. When the Government hires employees, it uses taxpayer funds—collected through excise taxes, income taxes, and fees—to divert human resources from the labor market. This reduces employers’ ability to hire workers freely, as they are forced to compete against their own tax contributions for labor. High levels of public employment may also signal that the State is limiting individual options by creating a quasi-governmental monopoly in the provision of services.[63]

In Puerto Rico, 66.5% of public employees work in the state government, while only 29% are employed by municipalities. Another 1.2% work in the Legislative Branch; 2.8% in the Judicial Branch; and 0.5% in other entities. In the United States, the proportion is reversed: 72.7% of public employees work at the municipal level, while only 27.3% work at the state level.[64] Municipalities could serve as organizational structures to promote operational efficiencies and improve the quality of public services by reallocating state government employees to areas where they are most needed.

Finally, government consumption expenditure as a percentage of income in Puerto Rico is among the five highest in the United States. To reduce government spending and enhance efficiency, an evaluation of the need to maintain the 132 state agencies and entities currently operating on the Island (listed in Appendix B) should be conducted. States with populations comparable to Puerto Rico’s operate with as few as 37 agencies, while others with larger populations and double the Island’s nominal per capita gross domestic product operate with fewer than 90 agencies. This suggests an excess of agencies in Puerto Rico and substantial room to reduce public spending.

Suggested Readings

American Legislative Exchange Council. (2024). Public employees per 10,000 of population. Rich States, Poor States. https://www.richstatespoorstates.org/variables/public_employees_per_10000/

Gobierno de Puerto Rico. (2022). Agencias. https://www.pr.gov/gobierno-2/agencias

Instituto de Estadísticas de Puerto Rico. (s.f.). Estadísticas de puestos ocupados en el gobierno. Estadísticas.pr. https://estadisticas.pr/en/inventario-de-estadisticas/puestos_ocupados_en_gobierno

Laffer, A. B., Moore, S., & Williams, J. (2024). Rich states, poor states ALEC-Laffer state economic competitiveness index. American Legislative Exchange Council. https://www.richstatespoorstates.org/app/uploads/2024/04/2024-17th-RSPS-State-Pages_WEB.pdf

Saxon, N., Villena, P., Wilburn, S., Andersen, S., Maloney, D., & Jacobson, R. (2023). Census of governments, survey of public employment & payroll summary report: 2022. United States Census Bureau. https://www.census.gov/library/publications/2023/econ/g23-aspep.html

Stansel, D., Torra, J., McMahon, F., & Carrión-Tavárez, Á. (2023). Economic freedom of North America 2023. Fraser Institute. https://doi.org/10.53095/13583008

United States Census Bureau. (2024, May). Public sector employees per 10,000 people: 2023. https://www.census.gov/library/visualizations/2024/econ/public-sector-employment.html

Recent Legislative Bills

During the 2021–2024 term, there has been a rise in legislative proposals that undermine the economic freedom of Puerto Rico residents and disrupt the proper functioning of the free market. These proposals are at various stages of the legislative process, with some already under the consideration of Governor Pedro R. Pierluisi. The issues these initiatives seek to address could be effectively managed by the market, rendering government intervention unnecessary. The following is a list of several bills that should not become law, along with their current status.

  1. House Bill 1557 of November 1, 2022, to create the “Ley para Regular el Arrendamiento a Corto Plazo en Puerto Rico” (Puerto Rico Short-Term Rental Regulation Act), “to ensure effective regulation and efficient oversight of short-term leasing in Puerto Rico; and for other related purposes” (2022, p. 1).

Status: Approved by the House of Representatives.

  1. Senate Bill 1052 of October 13, 2022, to amend Article 4 of Ley Núm. 180-1998, “Ley de Salario Mínimo, Vacaciones y Licencia por Enfermedad de Puerto Rico” (Law No. 180-1998, “Puerto Rico Minimum Wage, Vacation, and Sick Leave Act”); to amend Article 2.04 of Ley Núm. 26-2017, “Ley de Cumplimiento con el Plan Fiscal” (Law No. 26-2017, “Fiscal Plan Compliance Act”); and add a new subparagraph seven in Section 9.1 of Article 9 of Ley Núm. 8-2017, “Ley para la Administración y Transformación de los Recursos Humanos en el Gobierno de Puerto Rico” (Law No. 8-2017, “Human Resources Administration and Transformation Act of the Government of Puerto Rico”), “to create a leave for women and menstruating individuals and for other related purposes” (2022, p. 1).

Status: Filed.

  1. House Bill 1356 of May 13, 2022, “Ley para Facilitar la Implementación del Trabajo a Distancia en la Empresa Privada y Convertir a Puerto Rico en el Centro Digital de las Américas” (“Act to Facilitate the Implementation of Remote Work in the Private Sector and Establish Puerto Rico as the Digital Hub of the Americas”), “to establish guidelines and parameters to position Puerto Rico as a competitive alternative in the remote work labor market in the Americas; clarify the applicability of statutory provisions concerning labor protection and tax legislation; reaffirm the right to provide services for an employer or contractor from one’s own home; and for those and other related purposes…” (2022, p. 1).

Status: Approved by the Legislative Assembly and sent to the governor.

  1. Senate Bill 753 of February 9, 2022, to add a new subparagraph 65 to subsection (b) of Article 2.04 of Ley Núm. 85-2018, “Ley de Reforma Educativa de Puerto Rico” (Law No. 85-2018, “Puerto Rico Educational Reform Act”), “to require the Secretary of Education, in coordination with the Department of Labor and Human Resources, to design a course on unionism, union organization, collective bargaining, and other constitutional rights established in Sections 16, 17, and 18 of the Bill of Rights of the Constitution of the Commonwealth of Puerto Rico and for other related purposes” (2022, p. 1).

Status: Filed.

  1. Senate Bill 692 of December 6, 2021, to amend Articles 2.8, 2.9, 2.10, and 2.20 of Ley 4-2017, “Ley de Transformación y Flexibilidad Laboral” (Law 4-2017, “Labor Transformation and Flexibility Act”), “to establish that modifications to labor contracts require the express consent of all parties; to ensure that agreements to include alternative dispute resolution methods are expressly consented to by all parties; and for other related purposes” (2021, p. 1).

Status: Approved by the Senate.

  1. Senate Bill 224 of March 8, 2021, to amend Article 3 of Ley 427-2000, “Ley para Reglamentar el Período de Lactancia o de Extracción de Leche Materna” (Law 427-2000, “Act to Regulate Breastfeeding or Breast Milk Extraction Periods”), “to provide additional time for working mothers to extract breast milk or breastfeed during their workday; clarify that the time used for these purposes will be considered worked time for the employee…” (2021, p. 1).

Status: Approved by the Senate.

  1. House Bill 474 of January 26, 2021, to create the “Ley de Legitimación Activa Ambiental” (“Environmental Standing Act”), “to grant full statutory standing to any person in Puerto Rico who, motivated by a legitimate interest in upholding environmental public policy, seeks to file, intervene, request reconsideration, appeal, or act as a party in any civil or administrative action or cause under any law, regulation, or other legal source concerning environmental, ecological, or related matters involving the protection, conservation, or development of natural resources, or having a direct or indirect impact on such matters” (2022, p. 1).

Status: Vetoed by the governor.

Conclusion

This report provides a sample of the laws and regulations that are constraining the economic freedom of individuals and hindering the development of the free market in Puerto Rico. The highlighted regulations represent governmental obstacles that limit workers’ ability to participate in economic activity and contribute their industriousness and talent to the Island’s prosperity and well-being. Eliminating these barriers, which stem from centrally planned, paternalistic, and protectionist public policies, is essential for Puerto Rico residents to become the driving force behind economic growth.

Eliminating unnecessary government intervention in private enterprise and fostering a more favorable investment climate are critical steps to address the economic distortions and market inefficiencies caused by decades of restrictive public policies. Private investment, entrepreneurship, and labor are fundamental drivers of societal well-being and progress; yet, for these to effectively fuel Puerto Rico’s economic growth, it is essential to ensure that individuals and businesses can retain ownership of their gains and enhance returns on economic activity.

The recommendations in this report must be implemented in a coordinated and comprehensive manner to achieve a historic transformation in Puerto Rico’s public policy. Selectively adopting some recommendations while discarding others—whether due to political considerations or special interests—will perpetuate inequities and continue to benefit some at the expense of others. These injustices have persisted in Puerto Rico for far too long, causing significant harm. Only through a truly open and fair environment can the potential of each person on the Island be unleashed, giving them the opportunity to prosper and contribute to the sustainable development of Puerto Rican society.

Limitations

This report does not include all the laws and regulations that affect the economic freedom of Puerto Rico residents. Covering all relevant regulations comprehensively would require a more extensive and detailed study. The document provides a representative sample of the most critical barriers and constitutes a starting point for establishing a new public policy that unlocks potential and promotes prosperity and well-being on the Island.

Acknowledgements

The author expresses his gratitude to Jorge L. Rodríguez for his meticulous compilation of the included laws and his diligent response to numerous inquiries. He also extends his gratitude to those who provided documents and shared their experiences on the various topics included in this work to enrich its content. Finally, he thanks Edwin R. Ríos and Ojel L. Rodríguez Burgos for their thorough reading and critique of the manuscript.

References

Carrión-Tavárez, Á., Fernández-López, L. N., & Lara, J. (2023). Free market in Puerto Rico 2022. Institute for Economic Liberty. https://institutodelibertadeconomica.org/en/publications/free-market-in-puerto-rico-2022/

Córdova Phelps, A. L. (2024, 24 de abril). El Proyecto del Senado 1282. Microjuris al Día. https://aldia.microjuris.com/2024/04/24/el-proyecto-del-senado-1282/

Departamento de Estado. (2021, marzo). Gobierno de Puerto Rico presenta las oportunidades económicas de la Isla ante empresarios dominicanos. Gobierno de Puerto Rico.

Exec. Order No. 13966, 85 FR 81777 (December 14, 2020). https://www.federalregister.gov/documents/2020/12/17/2020-27948/increasing-economic-and-geographic-mobility

Friedman, M. (2002). Capitalism and freedom. (Rose D. Friedman, Colab.) The University of Chicago Press. https://ctheory.sitehost. iu.edu/resources/fall2020/Friedman_Capitalism_and_Freedom.pdf (Original work published 1962)

Friedman, M., & Friedman, R. D. (1998). Two lucky people: Memoirs. The University of Chicago Press.

González Taboada, J. (2006). El pensamiento económico y legal de Freidrich A. Hayek. Ceteris Paribus, 6, 125. https://www.uprm.edu/ceterisparibus/wp-content/uploads/sites/242/2022/03/pensamiento-y-legal-de-freidrich.pdf

Hartley, R. H. (192X?/2014). Friday facts: June 13, 2014. Georgia Public Policy Foundation. https://www.georgiapolicy.org/news/friday-facts-june-13-2014/

Hayek, F. A. (2009). The use of knowledge in society. American Economic Review, XXXV, No. 4. https://www.cato.org/sites/cato.org/files/articles/hayek-use-knowledge-society.pdf (Original work published 1945)

Hayek, F. A. (2006). The road to serfdom. Routledge. digamo.free.fr/roadto.pdf (Original work published in 1944)

Houngbo, G. F. (2023, 27 de junio). Las MIPYME, columna vertebral de las economías y del mundo del trabajo. Organización Internacional del Trabajo. https://www.ilo.org/es/resource/las-mipyme-columna-vertebral-de-las-economias-y-del-mundo-del-trabajo#:~:text=Micro%2C%20pequeñas%20y%20medianas%20empresas%20son%20la%20columna%20vertebral%20de,significativamente%20al%20crecimiento%20del%20PIB.

Ley Núm. 2 de 7 de noviembre de 1975, “Ley de Certificados de Necesidad y Conveniencia,” https://bvirtualogp.pr.gov/ogp/Bvirtual/leyesreferencia/PDF/Salud/2-1975.pdf

Ley Núm. 75 de 24 de junio de 1964, “Ley de Contratos de Distribución,” https://bvirtualogp.pr.gov/ogp/Bvirtual/leyesreferencia/PDF/75-1964.pdf

Lindner, S., & Nichols, A. (2014, January). The impact of temporary assistance programs on disability rolls and re-employment. Urban Institute Program on Retirement Policy. https://webarchive.urban.org/UploadedPDF/412503-The-Impact-of-Temporary-Assistance-Programs-on-Disability-Rolls-and-Re-Employment.pdf

Moore, T. G. (s.f.). Surface freight transportation deregulation. The Library of Economics and Liberty. Recuperado el 5 de agosto de 2024, de https://www.econlib.org/library/Enc/SurfaceFreightTransportationDeregulation.html

Oficina del Contralor. (2019, mayo). Informe especial CP-19-04. Resultado de la investigación de una querella relacionada con el contrato de inspección de furgones mediante el método de escaneo. https://www.ocpr.gov.pr/resultado-de-investigacion/informe-de-auditoria-cp-19-04-resultado-de-la-investigacion-de-una-querella-relacionada-con-el-contrato-de-inspeccion-de-furgones-mediante-el-metodo-de-escaneo/

P. de la C. 474, 19a Asamb. Legis. 1a Ses. Ord. (2021). https://aldia.microjuris.com/wp-content/uploads/2021/09/Proyecto-de-la-Cámara-474-1.pdf

P. de la C. 1356, 19a Asamb. Legis. 3a Ses. Ord. (2022). https://aldia.microjuris.com/wp-content/uploads/2023/03/PC1356-Radicado-1.pdf

P. de la C. 1557, 19a Asamb. Legis. 4a Ses. Ord. (2022). https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fsutra.oslpr.org%2Fosl%2Fsutra%2Fanejos%2F143164%2Fpc1557.docx&wdOrigin=BROWSELINK

P. del S. 224, 19a Asamb. Legis. 1a Ses. Ord. (2021). https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fsutra.oslpr.org%2Fosl%2Fsutra%2Fanejos%2F138059%2Fps0224a-22.doc&wdOrigin=BROWSELINK

P. del S. 692, 19a Asamb. Legis. 1a Ses. Ord. (2021). https://senado.pr.gov/document_vault/legislative_measures/2699/document/ps0692-21.pdf

P. del S. 753, 19a Asamb. Legis. 3a Ses. Ord. (2022). https://senado.pr.gov/document_vault/legislative_measures/2316/document/ps0753-22.pdf

P. del S. 1052, 19a Asamb. Legis. 4a Ses. Ord. (2022). https://senado.pr.gov/document_vault/legislative_measures/3253/document/ps1052-22.pdf

Real Academia Española. (2023). Censor. In Diccionario de la Lengua Española. Retrieved August 3, 2024, from https://dle.rae.es/censor?m=form

Stansel, D., Torra, J., McMahon, F., & Carrión-Tavárez, Á. (2023). Excerpt of Economic Freedom of North America 2023 (A. Carrión-Tavárez, Ed.). https://doi.org/10.53095/13583007

The Star Staff. (2023, October 2). Fiscal board insists proposed tax repeals must be revenue neutral. The San Juan Daily Star. https://www.sanjuandailystar.com/post/fiscal-board-insists-proposed-tax-repeals-must-be-revenue-neutral

Timmons, E., Norris, C., & Latino, R. (2022). Better jobs Mississippi: Smart regulation of occupations. Empower Mississippi. https://empowerms.org/wp-content/uploads/2022/01/Better-Jobs-Mississippi-report.pdf

Trudeau, N., Timmons, E., & Anastasi, S. (2024). State Occupational Licensing Index, 2024. Archbridge Institute. https://www.archbridgeinstitute.org/wp-content/uploads/2024/08/2024-State-Occupational-Licensing-Index.pdf

Appendix A: Occupational Licenses in Puerto Rico Existing in Fewer than Five States

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Appendix B: Agencies and Entities of the Government of Puerto Rico

  1. 9-1-1 Services Governing Board
  2. Administración de los Sistemas de Retiro de los Empleados del Gobierno y la Judicatura[65]
  3. Administración para el Adiestramiento de Futuros Empresarios y Trabajadores
  4. Administración para el Desarrollo de Empresas Agropecuarias
  5. Administration for Child Care and the Integrated Development of Childhood
  6. Administration for the Socioeconomic Development of the Family
  7. Aqueduct and Sewer Authority
  8. Automobile Accident Compensation Administration
  9. Censo de Puerto Rico
  10. Centro de Diabetes para Puerto Rico
  11. Child Support Administration
  12. Civil Rights Commission
  13. Comisión Apelativa del Servicio Público
  14. Comisión Industrial de Puerto Rico
  15. Company for the Integrated Development of Cantera’s Peninsula
  16. Cooperative Development Commission (CDCOOP)[66]
  17. Corporación del Proyecto Enlace del Caño Martín Peña
  18. Correctional Health
  19. Criminal Justice College
  20. Criminal Justice Information System
  21. Department of Consumer Affairs (DACO)
  22. Department of Corrections and Rehabilitation
  23. Department of Economic Development and Commerce (DDEC)
  24. Department of Education
  25. Department of Family
  26. Department of Health
  27. Department of Housing
  28. Department of Justice
  29. Department of Labor and Human Resources (DTRH)
  30. Department of Natural and Environmental Resources (DRNA)
  31. Department of State
  32. Department of the Treasury
  33. Department of Transportation and Public Works (DTOP)
  34. Economic Development Bank for Puerto Rico (EDB)
  35. Elderly and Retired People Advocate Office
  36. Emergency Medical Services Corps
  37. Environmental Quality Board
  38. Escuela de Artes Plásticas
  39. Families and Children Administration
  40. Farm Insurance Corporation of Puerto Rico
  41. General Council on Education
  42. Government Development Bank for Puerto Rico (GDB)
  43. Government of Puerto Rico Gaming Commission
  44. Government of Puerto Rico Human Resources Administration and Transformation Office (OATRH)
  45. Health Insurance Administration
  46. Highway and Transportation Authority
  47. Industrial Tax Exemption Office
  48. Industries for the Blind, Mentally Retarded and Other Disabled Persons
  49. Institute of Forensic Sciences
  50. Institute of Puerto Rican Culture
  51. Institute of Statistics
  52. Investigation, Prosecution and Appeals Commission
  53. Juvenile Institutions Administration
  54. Labor Relations Board
  55. Land Use and Permit Reviewing Board
  56. Lotería Tradicional de Puerto Rico
  57. Mental Health and Addiction Services Administration (ASSMCA)
  58. Metropolitan Bus Authority
  59. Municipal Revenue Collection Center (CRIM)
  60. Office for the Socioeconomic and Community Development (ODSEC)
  61. Office of Court Administration
  62. Office of Government Ethics
  63. Office of Management and Budget (OGP)
  64. Office of the Advocate for Patients
  65. Office of the Advocate of Veterans
  66. Office of the Commissioner of Financial Institutions (OCIF)
  67. Office of the Commissioner of Insurance
  68. Office of the Comptroller
  69. Office of the Electoral Comptroller
  70. Office of the Governor
  71. Office of the Inspector General
  72. Office of the Inspector General of Permits
  73. Office of the Ombudsman
  74. Office of the Ombudsman for Persons with Disabilities
  75. Office of the Resident Commissioner
  76. Office of the Special Independent Prosecutor’s Panel (FEI)
  77. Oficina de Administración de las Procuradurías
  78. Oficina del Procurador General (OPG)
  79. Oficina Estatal de Política Pública Energética
  80. Parole Board
  81. Permits Management Office
  82. Planning Board
  83. Port of Ponce Authority
  84. Programa de Empresas de Adiestramiento y Trabajo (PEAT)
  85. Programa de Servicios con Antelación al Juicio
  86. Public Broadcast Corporation of Puerto Rico
  87. Public Buildings Authority
  88. Public Corporation for the Supervision and Insurance of Cooperatives of Puerto Rico (COSSEC)
  89. Public Service Commission
  90. Puerto Rico and the Caribbean Cardiovascular Center Corporation
  91. Puerto Rico and the Island Municipalities Maritime Transport Authority
  92. Puerto Rico Conservatory of Music
  93. Puerto Rico Convention Center District Authority
  94. Puerto Rico Department of Agriculture
  95. Puerto Rico Electric Power Authority (PREPA)
  96. Puerto Rico Federal Affairs Administration (PRFAA)
  97. Puerto Rico Fine Arts Center Corporation
  98. Puerto Rico Firefighters Corps
  99. Puerto Rico General Services Administration
  100. Puerto Rico Housing Financing Authority
  101. Puerto Rico Industrial Development Company (PRIDCO)
  102. Puerto Rico Industrial, Tourist, Educational, Medical, and Environmental Control Facilities Financing Authority
  103. Puerto Rico Infrastructure Financing Authority (PRIFA)
  104. Puerto Rico Innovation & Technology Service (PRITS)
  105. Puerto Rico Land Administration
  106. Puerto Rico Land Authority
  107. Puerto Rico Medical Services Administration
  108. Puerto Rico Musical Arts and Stagecraft Corporation
  109. Puerto Rico National Guard
  110. Puerto Rico National Guard Institutional Trust
  111. Puerto Rico National Parks Company
  112. Puerto Rico Police Bureau
  113. Puerto Rico Ports Authority
  114. Puerto Rico Public Housing Administration
  115. Puerto Rico Public-Private Partnerships Authority
  116. Puerto Rico Supreme Court
  117. Puerto Rico Symphony Orchestra
  118. Puerto Rico Tourism Company
  119. Puerto Rico Trade and Export Company (Promoexport)
  120. Right of Employment Administration
  121. Solid Waste Authority
  122. Sports and Recreation Department (DRD)
  123. State Election Commission
  124. State Emergency Management and Disaster Administration Agency
  125. State Historic Preservation Office
  126. State Insurance Fund Corporation
  127. Teacher’s Retirement System
  128. Telecommunications Regulatory Board
  129. Traffic Safety Commission
  130. University of Puerto Rico (UPR)
  131. Vocational Rehabilitation Administration
  132. Women’s Advocate Office

[1] The empirical evidence supporting the results and positive effects of economic freedom is extensive; for example, the following academic literature can be consulted: Cervelló-Royo, R., Devece, C., & Blanco-González Tejero, C. (2023). Economic freedom influences economic growth and unemployment: An analysis of the Eurozone. Economic research-Ekonomska istraživanja36(2), 115; Davies, A., Harrigan, J. R., & Teague, M. (2015). Equality, liberty, and prosperity. Social Philosophy and Policy, 31(2), 180203; Hussain, M. E., & Haque, M. (2016). Impact of economic freedom on the growth rate: A panel data analysis. Economies, 4(2), 115; Medina-Moral, E., & Montes-Gan, V. J. (2018). Economic freedom, good governance and the dynamics of development. Journal of Applied Economics, 21(1), 4466; Naanwaab, C. (2018). Does economic freedom promote human development? New evidence from a cross-national study. The Journal of Developing Areas, 52(3), 183198; Nikolaev, B., & Bennett, D. L. (2017). Economic freedom and emotional well-being. Journal of Regional Analysis and Policy, 47(1), 8899; Powell, B. (Ed.). (2020). Economic freedom and prosperity. The origins and maintenance of liberalization. Routledge; Urdaneta Montiel, A. J., Urbina Chirinos, Á., Delgado Olaya, R. M., & Borgucci García, E. V. (2022). Libertad económica, emprendimiento, competitividad y crecimiento económico. Revista de ciencias sociales, 28(4), 430447.

[2] On the contrary, the difficulty of doing business in a place is often an indicator of government overregulation, overreach, and inefficiency, as well as the imposition of unnecessary burdens on workers and entrepreneurs.

[3] Some of these studies are: Bétila, R. R. (2021). The impact of ease of doing business on economic growth: Adynamic panel analysis for African countries. SN Business & Economics, 1(10), 144; Canare, T., Ang, A., & Mendoza, R. U. (2016). Ease of doing business: International policy experience and evidence. SSRN. https://doi.org/10.2139/ssrn.2834757; Leal Rodríguez, A. L., & Sanchís Pedregosa, C. (2019). Could the ease of doing business be considered a predictor of countries’ socio-economic wealth? An empirical analysis using PLS-SEM. Journal of International Studies, 12(4), 229-243; and R. S., Jacomossi, R. R., Barrichello, A., & Feldmann, P. R. (2023). The interdependence between ease of doing business, innovation, and competitiveness of nations. Brazilian Administration Review, 20(2), 1-14. https://doi.org/10.1590/1807-7692bar2023220103.

[4] See Xu, X., Hu, Y., & Tahir, S. H. (2023). Nexus between ease of doing business and foreign direct investment: Evidence from 130 economies. In E3S Web of Conferences (Vol. 409, p. 06015). EDP Sciences. https://doi.org/10.1051/e3sconf/202340906015.

[5] In a survey conducted by the Financial Oversight and Management Board for Puerto Rico in 2021, 88% of business owners stated that obtaining permits is a difficult task—and 54% of them indicated that it is very difficult—due to reasons such as lack of clarity in the requirements, having to consult multiple agencies, and the lack of interest from government employees involved. Respondents also noted that the cost and process of property registration are high, difficult, and inefficient, and that Puerto Rico’s tax structure is costly and complex. The results of this survey on the ease of doing business in Puerto Rico are available at https://juntasupervision.pr.gov/la-facilidad-para-hacer-negocios-en-puerto-rico-un-reto-continuo/.

[6] The following studies address this topic: Hall, J., Levendis, J., & Scarcioffolo, A. R. (2020). The efficient corruption hypothesis and the dynamics between economic freedom, corruption, and national income. The Journal of Developing Areas, 54(3), 123; Khandker, A. (2015). The effect of economic freedom on corruption: the case of South Asian countries. International Journal of Economics and Business Research9(4), 403414; Picón Viana, C. J., Ramos Ruiz, J. L., Almanza Ramírez, C., & Ramos Camargo, J. L. (2020). The joint effect of democracy and economic freedom on corruption. Revista de Administração Pública, 54, 285300.

[7] Economic transactions that do not report their income to the State in Puerto Rico could exceed $17 billion, equivalent to more than 30% of the Island’s gross domestic product.

[8] The data come from the 2017 County Business Patterns published by the U.S. Census Bureau and Ojeda, G. (2022,1 de marzo). La facilidad para hacer negocios en Puerto Rico: un reto continuo. Sin comillas. https://sincomillas.com/la-facilidad-para-hacer-negocios-en-puerto-rico-un-reto-continuo/.

[9] See Tuszynski, M. (2023). Tearing down barriers to prosperity: How more economic freedom can reduce poverty and boost prosperity in Pennsylvania. Commonwealth Foundation. https://www.commonwealthfoundation.org/research/economic-freedom-reduce-poverty-pennsylvania/

[10] The term appropriability refers to the ability of a person or company to capture and retain the benefits derived from their creativity, effort, or investment. In economics and business management, appropriability is used to describe how easy or difficult it is for an entity to appropriate the returns or profits generated by its work; for example, if someone develops a new technology, appropriability refers to the extent to which they can protect that technology and prevent others from copying it, thereby enabling them to derive greater benefits from their creativity. If work and innovation are to constitute a competitive advantage and the basis of personal or business success, they must be appropriable.

[11] The fundamental question of economic planning is who possesses the relevant knowledge to make decisions about the allocation and use of available resources. Friedrich A. Hayek argues that knowledge is dispersed among the various and numerous members of society based on circumstances of time and place. The essential economic problem is the coordination and utilization of individual knowledge for decision-making, which is never fully available to a single individual or central authority. “This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals. Planning in the specific sense in which the term is used in contemporary controversy necessarily means central planning—direction of the whole economic system according to one unified plan. Competition, on the other hand, means decentralized planning by many separate persons. . . . If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization” (1945/2009, pp. 7, 12).

[12] It is worth noting that Hayek did not question the good intentions of those advocating for a better distribution of resources. What he opposed was the use of coercion and discrimination when the proper approach was to gradually modify general rules of law and to avoid direct state control over the means of production, instead sensibly encouraging individuals to act spontaneously (González Taboada, 2006, p. 8).

[13] The ILE has published a series of essays on these four pillars and other topics related to economic freedom and free markets, which are available at https://institutodelibertadeconomica.org/en/publications/essays/.

[14] This often occurs in licensed occupations such as barber, electrician, plumber, automotive mechanic, automotive technician, and apprentice technician in refrigeration and air conditioning, among others. For more information on the recurrence of alternative routes that deviate from the legal structure and formal economy, see the writings of Hoffer, A., & Nesbit, T. (Eds.). (2020). Regulation and economic opportunity: Blueprints for reform. Center for Growth and Opportunity at Utah State University. https://www.thecgo.org/wp-content/uploads/2021/09/Regulation-16-pdf-1.pdf; and Montalbán Ríos, E. (2022, 3 de agosto). Continúa firme la economía informal de la isla. El Vocero. https://www.elvocero.com/economia/finanzas/contin-a-firme-la-econom-a-informal-de-la-isla/article_bc81e580-12be-11ed-afd1-cb1b16cc63e6.html.

[15] According to recent research, licensing requirements have cost the United States “an estimated 2.85 million jobs and over $200 billion annually in increased consumer costs” (Exec. Order No. 13966, 2020, p. 1). The reform of occupational regulation has been a key issue in the public policies of Presidents Barack Obama, Donald J. Trump, and Joseph R. Biden, Jr., aimed at fostering job creation, increasing labor force participation and personal mobility, and promoting economic development.

[16] Currently, 39 states and the District of Columbia have reformed their occupational licensing laws to make it easier for people with criminal records to find work in licensed occupations. Similarly, 22 states have adopted universal recognition for holders of occupational licenses from other U.S. jurisdictions. Universal recognition benefits, for example, those who wish to relocate to another jurisdiction, as well as individuals who emigrated and want to return to their place of origin.

[17] The University of Puerto Rico study did not include licenses for sports occupations such as boxer, hunter, jockey, referee, judge, and officer, as they were considered atypical occupations; if these licenses were included, the number of regulated occupations on the Island would be significantly higher.

[18]Across the United States, there are seven occupations licensed exclusively in a single jurisdiction. Puerto Rico’s 13 unique occupational licenses exceed the total number of exclusive licenses held by all 50 states and Washington, D.C. combined (Trudeau et al., 2024).

[19] The study also compared the occupational licenses in Puerto Rico with those of the 10 states with the highest number of Puerto Rican immigrants: Florida, New York, New Jersey, Pennsylvania, Massachusetts, Connecticut, California, Texas, Illinois, and Ohio. In the comparison, it was found that at least 40 of the occupations regulated on the Island do not require a license in 7 or more of these 10 states; specifically: (a) 24 do not require a license in any of the states, (b) 8 require a license in only one state, (c) 4 require a license in only two states, and (d) 4 require a license in only three states.

[20] Family Agricultural Markets, commonly known as mercados familiares (family markets), were created in August 2013 by the Administration for the Socioeconomic Development of the Family and the Puerto Rico Department of Agriculture. The goal was to enable NAP participants to purchase fresh and nutritious food at better prices and to provide Puerto Rican farmers with a secure market for their products. Family markets operate with NAP funds, but after 11 years in existence, they have not achieved their purpose. They are not accessible to NAP beneficiaries because, among other reasons, they are not permanent locations; they do not always offer better prices for these consumers; and, moreover, currently, only about 5% of farmers are authorized to sell their products in these markets.

[21] In 1974, Puerto Rico received an estimated allocation of approximately $80 million from the United States Federal Government to implement the Food Stamp Program, which reached 1.47 million beneficiaries within its first three years. In 2024, the NAP block grant received by the Island amounts to $2.8 billion for 1.27 million participants. Adjusted for inflation, the $80 million allocated in 1974 is equivalent to $531.2 million in 2024; therefore, there has been a 427.15% increase in nutritional assistance funds and a 511.29% increase in the per-beneficiary amount, despite a 13.60% reduction in the number of participants over these 50 years.

[22] In 2023, the Government of Puerto Rico launched a training and employment program for able-bodied adults without dependents who participate in NAP; however, the work requirement, in coordination with the Federal Government, to ensure these beneficiaries enter the workforce has not yet been established.

[23] This figure represents 22.9% of the number of individuals who were part of the civilian labor force as of June 21, 2023, and 27.6% of the individuals in this group aged 18 to 54.

[24] Puerto Rico’s labor force participation rate has never exceeded 50%, making it one of the lowest in the world.

[25] Puerto Rico is the fifth most difficult place in the world to hire employees, which is reflected in the current estimated shortage of 40,000 workers needed for approximately 2,000 housing, infrastructure, and energy construction projects tied to federal recovery funds. The job opportunities that currently exist and the difficulty of hiring workers on the Island for reconstruction projects led the Government of Puerto Rico to turn to the Dominican Republic in search of developers and labor (Department of State, 2022).

[26] It is counterintuitive for people to want or aspire to live on welfare and in poverty; in fact, in a survey conducted by the Institute for Economic Liberty, 93% of respondents stated that they prefer to earn a living by working, and 95% expressed that people need economic liberty to cooperate with each other and that economic liberty is fundamental for development and progress (Carrión-Tavárez et al., 2023).

[27] ILE is conducting a study on Puerto Rico’s tax system, which will be published in 2025.

[28] Although the tax burden encompasses more than personal income taxes, it is relevant to note that Singapore—the country with the highest economic freedom in the world and one used as a model for Puerto Rico’s economic growth and development—has a personal income tax system that has been emulated by other countries. In this system, residents “pay progressive taxes ranging from 0% to 24%; a nominal amount is paid, determined by the income bracket, followed by a defined percentage applied to income exceeding the minimum threshold for that bracket. Both the nominal tax amount paid and the percentage on the excess increase as the income bracket rises” (J. L. Rodríguez, personal communication, August 8, 2024).

[29] A fair and efficient tax system can increase revenue without the need to impose high rates. A light tax burden is essential to promote prosperity, generating a virtuous cycle of growth and sustainable development.

[30] The Doing Business North America 2022 study found, for example, that the cost of processing the deed for a commercial property with similar characteristics in Charlotte, Durham, Greensboro, and Raleigh is $26.00, while in San Juan it is $1,940.85. In Puerto Rico, consideration should be given to replacing the Spanish registration system with a simpler and more cost-effective one.

[31] See Anggraini, R. F., & Inaba, K. (2020). The impact of the ease of doing business on foreign direct investment. The Ritsumeikan Economic Review, 69(3), 393421.

[32] This reciprocal relationship is discussed in the following academic literature: Abanto Pirgo, G. A. (2013). El crecimiento económico y su incidencia en la reducción de la pobreza en el Perú: 20012012. Universidad Nacional de Trujillo; Aloui, Z., Hamdaoui, M., & Maktouf, S. (2024). Does governance matter to ensure significant effect of foreign direct investment on poverty reduction? Evidence from developing and emerging countries. Transnational Corporations Review16(2), 111; An, D. T. (2023). Private investment and economic development: Ensuring sustainability in the future. Journal of Human, Earth, and Future4(4), 424442; Post, L., Schmitz, A., Issa, T., & Oehmke, J. (2021). Enabling the environment for private sector investment: Impact on food security and poverty. Journal of Agricultural & Food Industrial Organization19(1), 2537.

[33] Federal variables related to individual and corporate income taxes did not apply to Puerto Rico.

[34] County-level variables related to zoning and rezoning did not apply to Puerto Rico.

[35] The investigation revealed that some state entities in Puerto Rico do not function as a one-stop shop; for example, the Office of Management and Budget oversees several permitting entities, while the Planning Board holds authority over future development, zoning, and rezoning across the Island, but delegates some of these powers to specific municipalities, such as San Juan (K. Rose, personal communication, November 29, 2022). This diversity complicates the analysis and calculation of ratios with other jurisdictions, as processes and data classification may vary depending on the municipality and how the information is recorded.

[36] The number of public holidays in Puerto Rico was 15 and this law increased them to 17.

[37] In early August 2024, the Governor of Puerto Rico, Pedro R. Pierluisi, signed House Bill 2063, which amends several articles of Law 161 of 2009 and Law 135 of 1967 to expedite the issuance of permits. The goal is for most permits—which currently take between 1 and 6 months—to be granted automatically or within 48 hours once the application is complete. According to the bill’s “Exposición de Motivos” (Statement of Motives), it seeks to promote a permitting system that accelerates permit issuance and reduces the cost of doing business in Puerto Rico. Following the signing of the bill, the Permits Management Office must carry out the necessary procedures to comply with the measure; therefore, at the time of writing this note, it is too early to examine and evaluate its implementation and effects.

[38] When an entrepreneur or business owner has a new idea for a product or service, they need to hire employees to implement it; yet, since they do not know whether their idea will be successful, they face the dilemma of hiring regular employees and risking not only losing their investment if the initiative fails, but also having to bear the cost of laying off regular employees. This leads to the hiring of employees under professional service contracts—without any benefits—or to not hiring additional employees at all, which causes many new initiatives to fail due to a lack of personnel.

[39] The State should not delegate its authority to set the minimum wage to individuals who are not elected by the people; this undermines the democratic balance offered by the republican system of government. Determining the minimum wage is an important matter that must be established with all the guarantees that it is based on socioeconomic considerations rather than on private interests or favors to third parties.

[40] A meta-analysis of studies published by the National Bureau of Economic Research revealed that 79.2% of the research found negative estimates regarding the effect of the minimum wage on workers and consumers. Employers adapted to higher minimum wages by eliminating jobs or not creating new ones; replacing full-time positions with part-time jobs; reducing work hours or benefits, such as health insurance coverage; and increasing the prices of goods and services.

[41] This law can be considered an undue interference by the State in the management of human resources within organizations, potentially promoting absenteeism and inefficiency in the workplace by preventing employers or supervisors from using unjustified sick leave absences, without medical certification, as a criterion for evaluating employee performance.

[42] Andrés L. Córdova Phelps (2024) explains that, with this law, it is not the hairstyle that is being vindicated, but rather the racial and national origin identity as expressed through the hairstyle. The distinction is crucial. It is not the protection of the individual right to expression—which is already constitutionally protected—but the cultural expression of a group as defined according to established norms. The hypothesis that informs the project—as can be seen in the explanatory memorandum—is racial discrimination against black people; nevertheless, it is not entirely clear how a law protecting hairstyles shields citizens from racial discrimination. Law No. 100 of June 30, 1959, as amended, known as the “Puerto Rico Anti-Discrimination Act,” prohibits discrimination on the basis of race; therefore, Law No. 106 of 2024 is redundant and exposes employers to unfounded legal actions, thus increasing the cost of doing business.

[43] Federal labor and civil rights laws in the United States, such as the Fair Labor Standards Act of 1938, the Equal Pay Act of 1963, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, and the Family and Medical Leave Act of 1993, apply in Puerto Rico; nevertheless, numerous labor and civil rights laws—many of them redundant and tautological—have been passed on the Island, creating an overloaded regulatory framework that burdens investment, entrepreneurship, and the growth of local micro, small, and medium-sized businesses. Some of these laws that have been enacted and are still in force in Puerto Rico include: Ley Núm. 3 de 13 de marzo de 1942, “Protection of Working Mothers Act”; Ley Núm. 100 de 30 de junio de 1959, “Puerto Rico Anti-Discrimination Act”; Título VII de la Ley de Derechos Civiles de 1964; Ley Núm. 44 de 2 de julio de 1985, “Act to Prohibit Discrimination Against Persons with Physical, Mental, or Sensory Disabilities”; Ley Núm. 69 de 6 de julio de 1985, “Act to Guarantee Equal Employment Rights”; Ley Núm. 17 de 22 de abril de 1988, “Act to Prohibit Sexual Harassment in Employment”; Ley Núm. 180 de 27 de julio de 1998, “Puerto Rico Vacation and Sick Leave Act”; Ley Núm. 212 de 3 de agosto de 1999, “Act to Guarantee Equal Employment Opportunities by Gender”; Ley Núm. 427 de 16 de diciembre de 2000, “Act to Regulate Breastfeeding or Breast Milk Extraction Periods”; Ley Núm. 7 de 4 de enero de 2002, “Act to Amend Article 5 of Ley Núm. 379 de 1948: Flexible Working Hours”; Ley Núm. 217 de 29 de septiembre de 2006, “Protocol on Managing Domestic Violence in the Workplace Act”; Ley Núm. 271 de 17 de diciembre de 2006, “Act to Prohibit Workplace Discrimination Based on Being a Victim or Being Perceived as a Victim of Domestic Violence, Sexual Assault, or Harassment”; Ley Núm. 22 de 29 de mayo de 2013, “Act to Prohibit Employment Discrimination Based on Sexual Orientation and Gender Identity”; Ley Núm. 4 de 26 de enero de 2017, “Labor Transformation and Flexibility Act”; Ley Núm. 16 de 8 de marzo de 2017, “Puerto Rico Equal Pay Act”; Ley Núm. 9 de 3 de enero de 2019, “Bill of Rights of Working Women Act”; Ley Núm. 83 de 29 de julio de 2019, “Special Leave Act for Employees Facing Domestic or Gender Violence, Child Abuse, Sexual Harassment in Employment, Sexual Assault, Lewd Acts, or Severe Stalking”; and Ley Núm. 90 de 7 de agosto de 2020, “Puerto Rico Workplace Harassment Prevention Act,” among others.

[44] For more information on corporate tax rates worldwide from 1980 to 2023, see Enache, C. (2023, December 12). Corporate tax rates around the world, 2023. Tax Foundation. https://taxfoundation.org/data/all/global/corporate-tax-rates-by-country-2023/.

[45] The corporate tax rate in Puerto Rico does not distinguish between micro, small, and medium-sized enterprises and large corporations; a tiered system that differentiates between them should be implemented (J. L. Rodríguez, personal communication, August 8, 2024).

[46] This revenue represents only 0.84% of the consolidated budget of the Government of Puerto Rico, which was $28 billion in fiscal year 2023.

[47] The information comes from a communication from the Financial Oversight and Management Board for Puerto Rico, which also indicates that the remaining 14 states have inventory taxes much lower than those of Puerto Rico (The Star Staff, 2023).

[48] Thomas Gale Moore (n.d.) states that in US jurisdictions where freight transportation prices are regulated, “studies showed that regulation increased costs and rates significantly. Not only were rates lower without regulation, but service quality, as judged by shippers, also was better. Products exempt from regulation moved at rates 20% to 40% below those for the same products subject to ICC [Interstate Commerce Commission] controls. For example, regulated rates for carrying cooked poultry, compared to unregulated charges for fresh dressed poultry (a similar product), were nearly 50% higher.”

[49] The regulation of freight transportation prices also “prevents the market from autonomously exercising its most valuable virtue—self-regulation—and limits growth opportunities for competitive freight carriers. Fixed rates simply level all freight carriers downward, preventing them from leveraging their talent, creativity, and innovation to seize market opportunities and thrive, which, in turn, benefits the entire industry” (J. L. Rodríguez, personal communication, August 8, 2024).

[50] A flexible rate system could allow better adaptation to changing market conditions, improve efficiency, and provide greater stability for both carriers and consumers. The ability to adjust rates according to circumstances would ensure that carriers can continue operating and that consumers have continuous access to necessary products.

[51] The law defines a principal or grantor as the “person who grants a distribution contract with a distributor” (Law No. 75, 1964, p. 2). In other words, it refers to the supplier of the products that will be distributed and sold in the Puerto Rican market.

[52] Nor has a practical benefit been demonstrated, as in the 15 years of 100% inspection of containers in Puerto Rico, it has not been reported that the system has found weapons, illegal drugs, or other restricted materials.

[53] The Office of the Comptroller selected a sample of containers over a period of time and found that, from January 1, 2013, to March 31, 2015, the subsidiary did not inspect 3,768 containers from 3 dealers. Despite this, the Authority paid the subsidiary $214,776 for these containers (2019, p. 6).

[54] When the capital investment is in a pharmacy, a blood bank, or a clinical laboratory, it will always be necessary to obtain a certificate of need or convenience in advance (Ley Núm. 2, 1975, p. 1), regardless of the amount of the investment.

[55] Hayek precisely defines the limits of state activity: “To create conditions in which competition will be as effective as possible, to supplement it where it cannot be made effective, to provide the services which, in the words of Adam Smith, “though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual or small number of individuals,” these tasks provide indeed a wide and unquestioned field for state activity” (1944/2006, p. 40). Friedman further adds that: “The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the “rules of the game” and as an umpire to interpret and enforce the rules decided on. What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game” (1962/2002, p. 15).

[56] It refers to the person entrusted with the function of exercising prior censorship (Real Academia Española, 2023).

[57] These states are Arizona, California, North Carolina, South Carolina, Colorado, North Dakota, South Dakota, Idaho, Kansas, Minnesota, New Hampshire, New Mexico, Pennsylvania, Texas, Utah, Wisconsin, and Wyoming.

[58] These jurisdictions are North Carolina, South Carolina, Connecticut, Florida, Georgia, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Mississippi, Montana, New York, Ohio, Oklahoma, Tennessee, Vermont, Virginia, West Virginia, Washington, and Washington, D.C.

[59] The exceptions were long-term care facilities in both states and, additionally, post-operative care facilities in Montana.

[60] Only legal entities that risk their own capital in a business have the incentives to operate in the free market in the most efficient manner and with the greatest benefit to consumers.

[61] Attrition-based reduction refers to the gradual decrease in the number of government employees by not filling vacancies when employees retire, resign, or are transferred.

[62] The increase in economic activity and the resulting employment opportunities would raise labor participation in the private sector, which, in turn, would help reduce government employment as a percentage of total state employment.

[63] The description of the “Government Employment” subcomponent in the Economic Freedom of North America 2023 report states the following: “High levels of government employment may also indicate that government is attempting to supply goods and services that individuals contracting freely with each other could provide on their own; that the government is attempting to provide goods and services that individuals would not care to obtain if able to contract freely; or that government is engaging in regulatory and other activities that restrict the freedom of citizens. Finally, high levels of government employment suggest government is directly undertaking work that could be contracted privately” (Stansel et al., 2023, p. 20).

[64] The data is sourced from the report by Saxon et al. (2023) included in the suggested readings for this section.

[65] The Spanish names included in this list do not have an official English translation.

[66] The Spanish acronyms included in this list indicate the names by which these entities are commonly known.

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