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Fiscal policy in Colombia : tapping its potential for a more equitable society

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  • Moller, Lars Christian

Abstract

Colombia has the seventh highest Gini coefficient of income inequality in the world. The Santos Administration is aware of this challenge and is taking important measures to reduce disparities. The government is also aspiring to join the OECD, which exhibits much lower income disparities, mainly as a result of effective policies of fiscal redistribution. In Colombia, meanwhile, direct taxes, indirect taxes, and monetary transfers hardly dent the high Gini coefficient. To reduce income inequality, Colombian policy makers could consider introducing a more progressive tax-transfer system. This paper ranks alternative inequality-reducing fiscal policy options based on their effectiveness. It argues that there are potentially important redistributive potential gains available from tax reforms if combined with good spending decisions. It presents an illustrative reform package that would be sufficient for Colombia to reach levels of inequality similar to Chile or Costa Rica in a fiscally neutral manner. Nonetheless, further analysis is needed to explore all available policy options and identify those best suited for Colombia.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6092.

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Date of creation: 01 Jun 2012
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Handle: RePEc:wbk:wbrwps:6092

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Related research

Keywords: Subnational Economic Development; Taxation&Subsidies; Debt Markets; Emerging Markets; Economic Theory&Research;

References

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  1. Adriana Kugler & Maurice Kugler, 2003. "The labor market effects of payroll taxes in a middle-income country: Evidence from Colombia," Economics Working Papers 721, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Sergei Soares & Rafael Guerreiro Osório & Fábio Veras Soares & Marcelo Medeiros & Eduardo Zepeda, 2009. "Conditional cash transfers in Brazil, Chile and Mexico: impacts upon inequality," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 0(Special i), pages 207-224.
  3. Ligia Alba Melo B. & Jorge Enrique Ramos F,, 2010. "Algunos aspectos fiscales y financieros del sistema de salud en Colombia," BORRADORES DE ECONOMIA 007620, BANCO DE LA REPÚBLICA.
  4. Giovanni Andrea Cornia, 2010. "Income Distribution under Latin America's New Left Regimes," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 11(1), pages 85-114.
  5. Cuesta, Jose & Olivera, Mauricio, 2010. "Social security distortions onto the labor market: estimates for Colombia," Policy Research Working Paper Series 5390, The World Bank.
  6. Chris Heady, 1993. "Optimal taxation as a guide to tax policy: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(1), pages 15-41, February.
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Cited by:
  1. Richard M. Bird & Eric M. Zolt, 2013. "Taxation and Inequality in the Americas: Changing the Fiscal Contract?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1315, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Isabelle Joumard & Juliana Londoño Vélez, 2013. "Income Inequality and Poverty in Colombia - Part 1. The Role of the Labour Market," OECD Economics Department Working Papers 1036, OECD Publishing.

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