Puerto Rico - The Economics of Status

This paper attempts to present an analysis of the economic and fiscal dimensions of Puerto Rican status. The status debate in Puerto Rico has, historically, been heavily concentrated in political analysis of the status options: commonwealth, statehood and independence. The document's key conclusion is that status has fundamental economic and fiscal implications for the island and for the United States. Statehood would stimulate greater investment and more rapid economic growth through full integration with the U.S. economy and a more stable investment climate. An Analysis of Puerto Rico's potential for convergence in growth of income to that of the US indicates that the economic policies improved by statehood would spur faster growth through full integration with the U.S. economy. The present Commonwealth status, in addition to promoting dependence - oriented development, has kept Puerto Rico from catching up with the rest of the U.S. In terms its fiscal implications, statehood would actually have been a net benefit to the U.S. Treasury, by imposing income taxes on firms and individuals who now do not paid. Puerto Rico and U.S. citizens living there would benefit from statehood through increased federal transfers and being brought into equality with counterparts on the mainland. Additional transfers to Puerto Rico under statehood would have been outweighed by increased tax revenues. Statehood would eliminate Puerto Rico's nebulous and uncertain political status which will continue to hinder investment in a future of increasing globalization. Statehood would clearly define Puerto Rico as a "domestic" rather than "foreign" location in the eyes of investors, and distinguish it from other developing countries in the region as competition for investment intensifies.