Colombia has the seventh highest Ginicoefficient of income inequality in the world. The SantosAdministration is aware of this challenge and has takenimportant steps to reduce disparities. The Government isalso aspiring to join the OECD, which exhibits much lowerincome disparities, mainly as a result of effective policiesof fiscal redistribution. In Colombia, meanwhile, directtaxes, indirect taxes, and monetary transfers hardly dentthe high Gini coefficient. To reduce income inequality,Colombian policy makers could consider introducing a moreprogressive tax-transfer system. This paper ranksalternative inequality-reducing fiscal policy options basedon their effectiveness. It argues that there are potentiallyimportant redistributive potential gains available from taxreforms if combined with good spending decisions. Itpresents an illustrative reform package that would besufficient for Colombia to reach levels of inequalitysimilar to Chile or Costa Rica in a fiscally neutral manner.Nonetheless, further analysis is needed to explore allavailable policy options and identify those that are bestsuited for Colombia.
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