governmental institutions. As far as government expenditures are concerned, the paper only includes social spending, and the subsidies granted in the use of essential utilities, given it is challenging to allocate other types of benefits to the individuals of the households.

The results found suggest that the combined effect of taxes and social spending in Colombia contributes to the reduction of poverty and inequality, even more so than in some of the countries of the region, such as Chile, Ecuador, and Mexico. Furthermore, the finding was that direct taxes are progressive and propoor, while indirect taxes are regressive and contribute to an increase in inequality. Direct transfers, for their part, are progressive and pro-poor. Transfers in kind for education and health services are progressive and contribute to the reduction of inequality. Nevertheless, these results should be interpreted with care since the quality of these services is not considered in the analysis.

The rest of the paper is structured as follows: section II provides a brief description of the structure of taxes and social spending in Colombia. Section III makes a general presentation of the methodology applied in this work, the data used, and the main assumptions. Section IV describes the impacts of fiscal policy on poverty and inequality and presents a methodological comparison with the previous CEQ. Section V shows the impact of taxes and expenditures. Finally, section VI offers the final reflections and future lines of work.

# **II. The tax system and social spending in Colombia in 2017**

This section provides a brief description of the taxation, transfers, and social spending system in Colombia for the year 2017. It merits clarifying that the fiscal situation of 2017 was considered a point of reference given that the households survey used for the exercise correspond to that year. The section begins with direct and indirect taxes and subsequently with the subsidies and social spending of the Colombian system.

## i. The Colombian government's revenues

The revenue structure of the Colombian government is in Table II-1. The total government revenue considering taxes paid by residents and non-residents amounted to 225,889 billion pesos, which is equivalent to 24.5 percent of GDP in 2017. When exclusively viewing taxes paid by residents, collections total 205,056 billion pesos, equal to 22.3 percent of GDP in 2017 (see column 2, Table II-1). Revenue from the payment of taxes was the largest revenue earner. These collections accounted for 16.6 percent of GDP in 2017. The analysis in this study focuses on the central taxes such as income tax, value-added tax (VAT), and consumption tax. Income taxes are equivalent to 6.2 percent of GDP (see column 2, Table II1), while revenue from social security contributions is equivalent to 5.4 percent of GDP (see column 2, Table II-1). Thus, government revenues considered in this paper represent 11.6 percent of GDP, that is to say, 52.1 percent of total general government revenues in 2017. As mentioned earlier, corporate taxes paid could not be considered because of the difficulty in allocating their impact to a specific household. Similarly, taxes paid by non-residents were also not included because the household survey fails to capture them.

Column 6 of Table II-1 presents the ratio between the total collections obtained with the household survey, and the one reported in the administrative data. This ratio is different from 100 percent since the survey only captures taxes paid by households and administrative data consider not only household 4