<!-- Start of picture text --> FIGURE IV-3: DISTRIBUTION OF THE TOTAL VALUE OF THE UPC<br>25<br>19%<br>20<br>16.9%<br>15<br>10<br>5<br>1.6%<br>0.4%<br>0<br>1 2 3 4 5 6 7 8 9 10<br>Decile<br>Subsidized Contributory<br>Source: World Bank Group staff estimates based on EPNH 2017 and DIAN<br>Notes: The deciles were created using per-capita market income + pensions.<br>UPC values are already re-scaled.<br>% transferred to each decile<br><!-- End of picture text --> The current version of the CEQ does not consider public health resources for vaccination and preventive care since the beneficiaries cannot be identified directly from the survey. Nor does it include resources for the poor, uninsured population. It is worth clarifying that we tried to include the budget for the attention of this population. In this manner, the total value spent for this item in the local administrations was calculated, and a per capita value was taken considering the numbers of the poor population not served by the Ministry of Health. However, inconsistent per capita values were obtained in some cases. For example, in Vaupés, the per capita value of this item was equivalent to 10.7 times the UPC, so the decision was made not to include a value that could overestimate the effects on inequality. Finally, following the methodological framework of the CEQ, health transfers were rescaled.

# ii. The impact on inequality

The combined effect of taxes and social spending helps to reduce inequality in Colombia substantially.<sup>44</sup> Figure IV-4: shows the changes in the Gini coefficient when different taxes and social spending are considered, using the income definitions of Figure III-1 for two CEQ Exercises. In the current effort, it is observed that before any government intervention, the Gini coefficient for market income was 0.551 when pensions are considered as a transfer and 0.559 when pensions are considered deferred income. By including direct transfers and subtracting direct taxes, along with contributions to the social security system, one arrives at disposable income, which has an associated Gini coefficient of 0.517. The net effect of indirect taxes and subsidies provided to households for utilities is neutral. While Gini decreases once these effects are considered, the change is not statistically significant. Ultimately, the final income has a Gini coefficient of 0.455. In other words, the transfers that the government provides in education and health services help to reduce inequality significantly. Upon considering all the effects of fiscal policy, the reduction in the Gini coefficient is 0.096 points when moving from market income considering pensions as deferred income, to final income, and 0.104 when pensions are considered a transfer.

When comparing the current results with those obtained in the previous year (ECV, 2010), it is observed that the taxes and expenses system in Colombia would become more redistributive.<sup>45</sup> Thus, while in the

> 44  Fuel subsidies (gasoline and Diesel) are not included, due to lack of administrative information.

> 45 Despite using the CEQ methodology in both exercises, these two exercises are not strictly comparable since the current method includes several improvements as explained in the subsection called methodological comparison. It is important that the reader bear in mind that the differences that are shown between methodologies are due to two reasons: the first of them the

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