Washington Dollars and the Puerto Rican Economy: Amounts, Impacts, Alternatives1

By examining the Washington to Puerto Rico flow of funds in some detail and comparing it with the flow of federal funds to the states, this paper demonstrates that the island’s receipt of funds is not uniquely large and cannot be viewed as representing the “largess ” of U.S. taxpayers. The funds coming from Washington to Puerto Rico cannot bear the weight of responsibility for the island’s economic problems that various sources have placed upon them. Puerto Rico’s economic ills have to be explained by a larger set of factors. Nonetheless, some of the Washington to Puerto Rico transfer programs may create a set of incentives that are not in the interests of Puerto Ricans. As a result, the policy prescriptions offered here have much in common with those of analysts who see the transfer programs as a major problem, in particular with regard to the Earned Income Tax Credit. The policy prescriptions offered here, however, go beyond others in suggesting a more favorable treatment of Puerto Rico with regard to federal procurements and the Child Tax Credit. An overall message of the analysis is that the flow of federal funds could be changed in a positive rather than punitive manner to improve the operation of the Puerto Rican economy