This report summarizes the results ofthe PSIA and explains the three analyses used to determinethe impact of the tax reform. The first analysis integratesdata from administrative tax records with householdstatistics from the Gran Encuesta Integrada de Hogares(GEIH) conducted by the Departamento Administrativo Nacionalde Estadística (DANE) to correct for the problem ofunderrepresentation of high-income households that istypical of household surveys. The second analysis, which isbased on consumption data from the Encuesta de Calidad deVida (ENCV) also conducted by DANE, follows the LATAXmicro-simulation technique and focuses on the effect oftaxes on income distribution and on government revenues onthe assumption that individuals’ purchasing habits remainthe same. The third analysis uses a general equilibriummodel of the labor market to estimate the impact of the taxreforms on the labor market and on informality. The firstanalysis shows that the effects of Colombia’s income taxreform serve the intended purpose of reducing incomeinequality. Results based on the constructed full incomedistribution, which uses administrative tax records andhousehold survey data, indicate that the Gini coefficientdecreases from 0.586 to 0.579. Considering that the averageyearly reduction of the Gini coefficient in Latin Americaover the last 10 years was 0.51 percentage points, theestimated reduction in Colombia’s Gini coefficient is nottrivial. These results also demonstrate the importance ofusing the full income distribution to calculate trueinequality in a country.
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