Puerto Rican Development in Light of U.S. Colonialism: The Case of the Rum Excise Tax

Abstract

The relocation of Diageo's rum production facility from Puerto Rico to the U.S. Virgin Islands in 2010 had larger ramifications than the shifting of jobs from one island to another. Related to this move is the distribution of monies associated with the excise tax placed on each bottle of rum produced in these territories. For close to five decades, Puerto Rico received a large majority of these funds and invested them in economic growth. To secure a larger share of the cover‐over money, the U.S. Virgin Islands promised large corporate kickbacks funded by the tax. This article examines which strategy has an effect on economic growth, the cover‐over as a supplemental fund or as an enticement to multinational corporations. It concludes that the use of the cover‐over as a supplement to island growth is ineffective and that constrained growth on the islands is due to their political status as territories of the United States.