Political Economy of Tax Reforms: The Case of Colombia
This paper explores the aspects of political economy that have influenced processes of tax reform in Colombia over the last two decades. The main limitations to tax reform have come from the high fragmentation of and lack of programmatic discipline in Congress as a result of changes introduced by the Constitution of 1991 and from the strong lobbying power of special interest groups. Increasing revenues, the main goal of successive reforms, has been difficult, especially in the period 1991-2005. Given political constraints, various administrations increased nominal tax rates while at the same time expanding popular tax exemptions. In addition, the need for revenue led to the creation of highly distortionary taxes. As a result, a complicated, inefficient, and inequitable tax system emerged. There have been several efforts to establish a better tax system since 2006, but the same political obstacles prevented the achievement of this objective. The most recent reform, undertaken in 2012, addressed a number of structural problems in the tax system, but also raised the question of whether a more efficient and equitable tax system could be reached only through a gradual process.
We are grateful to The Tinker Foundation for their generous support of this project.
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