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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.

Suggested Citation

  • Moller, Lars Christian, 2012. "Fiscal policy in Colombia : tapping its potential for a more equitable society," Policy Research Working Paper Series 6092, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6092
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    References listed on IDEAS

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    1. Kugler, Adriana & Kugler, Maurice, 2003. "The Labor Market Effects of Payroll Taxes in a Middle-Income Country: Evidence from Colombia," IZA Discussion Papers 852, Institute for the Study of Labor (IZA).
    2. World Bank, "undated". "On the Edge of Uncertainty : Poverty Reduction in Latin America and the Caribbean during the Great Recession and Beyond
      [Al borde de la incertidumbre : reducción de la pobreza en América Latina y e
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    3. 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.
    4. 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.
    5. 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.
    6. Cuesta, Jose & Olivera, Mauricio, 2010. "Social security distortions onto the labor market: estimates for Colombia," Policy Research Working Paper Series 5390, The World Bank.
    7. 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.
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    Citations

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    Cited by:

    1. Richard M. Bird & Eric M. Zolt, 2014. "Taxation and inequality in the Americas: Changing the fiscal contract?," Chapters,in: Taxation and Development: The Weakest Link?, chapter 7, pages 193-237 Edward Elgar Publishing.
    2. Facundo Alveredo & Juliana Londoño Vélez, 2013. "High incomes and personal taxation in a developing economy: Colombia 1993-2010," Commitment to Equity (CEQ) Working Paper Series 12, Tulane University, Department of Economics.
    3. Bird, Richard M. & Zolt, Eric M., 2015. "Fiscal Contracting in Latin America," World Development, Elsevier, vol. 67(C), pages 323-335.
    4. Emily Nell & Martin Evans & Janet Gornick, 2016. "Child Poverty in Middle-Income Countries," LIS Working papers 666, LIS Cross-National Data Center in Luxembourg.
    5. Leonardo Fabio Morales & Carlos Medina, 2017. "Assessing the Effect of Payroll Taxes on Formal Employment: The Case of the 2012 Tax Reform in Colombia," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2017), pages 75-124, November.
    6. World Bank, 2014. "Towards Sustainable Peace, Poverty Eradication, and Shared Prosperity
      [Hacia la paz sostenible, la erradicación de la pobreza y la prosperidad compartida : notas de política: Colombia]
      ," World Bank Other Operational Studies 21037, The World Bank.
    7. Facundo Alveredo & Juliana Londoño Vélez, 2013. "High incomes and personal taxation in a developing economy: Colombia 1993-2010," Commitment to Equity (CEQ) Working Paper Series 1312, Tulane University, Department of Economics.
    8. Víctor Mauricio Castañeda Rodríguez, 2014. "El gasto social como factor que favorece una mayor dependencia del IVA. Un análisis para el caso colombiano," REVISTA ECOS DE ECONOMÍA, UNIVERSIDAD EAFIT, June.
    9. 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.
    10. Facundo Alvaredo & Juliana Londoño Vélez, 2014. "Altos ingresos e impuesto de renta en Colombia, 1993-2010," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 16(31), pages 157-194, July-Dece.

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