2017 Index of Economic Freedom
State control of Cuba’s economy is both pervasive and inefficient, hampering any meaningful development of a job-creating private sector. As the largest source of employment, the bloated government sector soaks up much of the labor force. After decades without effective economic reform, the government has eased the rules on private employment in an effort to reshape the economy and improve efficiency.
Cuba’s potential entrepreneurs have long been shackled by tight government control and institutional shortcomings. No courts are free of political interference, and private property is strictly regulated. Excessive bureaucracy and lack of regulatory transparency continue to limit trade and investment.
Although Fidel Castro died in November 2016, his 85-year-old younger brother Raúl continues to lead both the government and the Cuban Communist Party. Raúl’s only son, Colonel Alejandro Castro Espín, and former son-in-law, General Luis Alberto Rodríguez López-Callejas, are being groomed to perpetuate the family’s political and economic control of the island. Ironically, violent repression of civil society and religious persecution actually increased in the run-up to President Barack Obama’s March 2016 visit that showcased weakened U.S. economic sanctions and looser travel restrictions on Americans visiting Cuba. In the absence of significant future oil subsidies from nearly bankrupt Venezuela, Cuba’s dysfunctional economy is even more dependent on external assistance such as remittances from Cuban émigrés.
Rule of Law
Most means of production are owned by the state. Seizures of property by police without legal justification are common. The nominally independent but heavily politicized judiciary is directly subordinate to the National Assembly and the Communist Party, which may remove or appoint judges at any time. Corruption is a serious problem, with widespread illegality permeating both the limited private enterprises and the vast state-controlled economy.
The top individual income tax rate is 50 percent, and the top corporate tax rate is 30 percent. Other taxes include a tax on property transfers and a sales tax. The overall tax burden equals 38.3 percent of total domestic income. Government spending has amounted to 63.3 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.2 percent of GDP. Public debt is equivalent to 35.0 percent of GDP.
Only limited private economic activity is permitted. Inconsistent and nontransparent application of regulations impedes entrepreneurship. State control of the formal labor market has led to the creation of a large informal economy. Prices are tightly controlled to contain inflation, but in 2016, the government backpedaled from plans to eliminate its dual currency system, which has long been a source of economic distortions.
Trade is only moderately important to Cuba’s economy; the value of exports and imports taken together equals 26.4 percent of GDP. The average applied tariff rate is 7.7 percent. State-owned enterprises significantly distort the economy. Access to credit for private-sector activity is severely impeded by the shallow financial market. Despite a decade of incremental changes, the state remains firmly in control.
How does it compare with others? Chile, Venezuela, Costa Rica, Argentina, Brazil, Jamaica ?
10 Chile 76.5 -1.2
41 Jamaica 69.5 +2.0
63 Costa Rica 65.0 -2.4
140 Brazil 52.9 -3.6
156 Argentina 50.4 +6.6
178 Cuba 33.9 +4.1
179 Venezuela 27.0 -6.7
180 North Korea 4.9 +2.6