Revisiting the Distributive Impacts of Fiscal Policy in Colombia

Colombia is one of the most unequal countries in the region and the world. Given the redistributive role of fiscal policy, this study uses recent data from the 2021 Integrated Household Survey to explore the impacts of taxes and spending on poverty and inequality in Colombia. The study introduces innovations to the literature on Colombia, including an update of the fiscal microsimulation model to reflect the most recent economic context; an introduction of new fiscal policy parameters, such as gasoline subsidies and carbon taxes; and methodological improvements. The results show positive redistributive impacts, but these are considerably lower than those seen in other country members of the Organisation for Economic Co-operation and Development (OECD). Direct taxes and transfers reduce the Gini index from 0.543 to 0.505; and direct taxes, indirect taxes, subsidies, and monetary transfers reduce total poverty from 42.1 to 40.2 percent and extreme poverty from 16.1 to 11.7 percent. Direct taxes, transfers, and subsidies are progressive and contribute to poverty reduction, while indirect taxes such as the value-added tax or consumption tax are regressive and do not reduce poverty. This reflects a tax system that is progressive, but not progressive enough (with a low proportion of the population with high levels of income contributing), and cash transfer and subsidy programs that have room for improvement in their targeting.

Bibliographic Details

Main Authors:	Baquero, Juan Pablo, Dávalos, María Eugenia, Monroy, Juan Manuel
Format:	Working Paper biblioteca
Language:	English English
Published:	World Bank, Washington, DC 2023-07-18
Subjects:	FISCAL POLICY, INEQUALITY, POVERTY AND FISCAL POLICY, DISTRIBUTIVE IMPACT OF TAXES, TRANSFER IMPACT ON POVERTY, SOCIAL SPENDING IMPACT INEQUALITY,
Online Access:	http://documents.worldbank.org/curated/en/099408407062312591/IDU00e7b81ab0d62404c3f0a585007e099a427ac https://openknowledge.worldbank.org/handle/10986/40035
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