# **I. Introduction**

The economic consolidation of Colombia from the beginning of the 21st century has led to an improvement in many of the country's social indicators. Extreme poverty in Colombia has been reduced by more than half in the last 16 years, from 17.7 percent in 2002 to 7.2 percent in 2018. Similarly, moderate poverty has been reduced by 22.7 percentage points since 2002, reaching a 27 percent rate in 2018, leading to a reduction in the number of people in poverty from approximately 20 million in 2002 to 13.1 million in 2018. These improvements are not only observed in monetary poverty, but also in multidimensional poverty, where Colombia managed to reduce the poverty incidence from 49 percent in 2003 to 19.6 percent in 2018. That is, 4 million Colombians managed to jump the threshold of multidimensional poverty.

Despite the country's notable progress in reducing the poverty incidence at the national level, geographical disparities remain. To wit, in 2018, extreme poverty in rural areas was more than three times that of urban areas, and moderate poverty was about 48 percent higher in rural areas. In addition to the significant urban-rural gaps, poverty data at the departmental level reveal even more deep-rooted geographical disparities, one of Colombia's most pressing challenges in fostering balanced territorial development. Twelve of the sixteen departments that had higher poverty rates than the national one in 2002 moved further away from the national average in 2018.

Despite the vast geographical disparities in Colombia, it is imperative to emphasize that, in poverty reduction, Colombia has managed to veil the patterns experienced in the Latin America and Caribbean region. While it is true that the incidence rates of poverty in Colombia remain high compared to other countries in the region, Colombia has achieved the most significant reduction in poverty since the beginning of the 2000s.

Although Colombia managed to make progress in reducing poverty, much remains to be done in terms of inequality. For the second time in the last decade, inequality in Colombia in 2017 was lower than that of Latin America. The average Gini coefficient of the Latin American and Caribbean countries was 51.4 in 2017, while that of Colombia for the same year reached 49.7.<sup>1</sup> However, in 2017 Colombia was the third most unequal country in the region after Brazil and Panama. On the other hand, the rate of inequality reduction in the last 14 years was much lower than that of countries that started with the same or higher levels of inequality in 2003. For example, the Gini of Peru and Colombia stood at 53.4 in 2003, and while Peru's Gini fell to 43.3 in 2017, Colombia's was only 49.7. In 2017, in Colombia, 20 percent of the wealthiest people in the country owned 55.5 percent of total income, while wealth in the hands of the poorest 20 percent barely rises to 4 percent. Fiscal policy is one of the instruments available to the national government to help Colombia reduce the inequality levels that it currently experiences and continue on the path to eliminating poverty.

The country's general deficit rose to 3.6 percent of Gross Domestic Product (GDP) in 2017.<sup>2</sup> This deficit is due in part to low tax revenues, resulting from exemptions, deductions, evasion, and tax avoidance. While collections in Colombia barely reached 18.8 percent of GDP in 2017, OECD countries collect 34.2 percent,

> 1 The information was obtained from the socioeconomic database for Latin America and the Caribbean (CEDLAS and the World Bank) and the last update was made in April 2019.

> 2 Andi (2017), Informe: Balance 2017, perspectiva 2018. Colombia.

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