Inequality in Colombia

Inequality in Colombia

Colombia is the second-most unequal country in Latin America and seventh in the world among 194 countries

• Despite economic growth, the unequal distribution of income in the world and in Colombia has increased in the last 40 years. According to recent research which analyzed the Gini index, rose from 0.30 to 0.35.

• The Gini index measures inequality between 0 and 1, the larger the number the greater the inequality. It is currently used by the World Bank (WB) to establish income inequality

The Gini index

The Gini index for Colombia is 0.53, placing it as the second-most unequal country in Latin America only after Honduras (0.537). This reality explains the difficult situation of many people for paying for housing, education, transportation, and credit despite a healthy country economy.

Pattern change in economic growth

• In the 40s and 50s, the economies grew due to capital accumulation (machinery, equipment, and assets in hands of workers). However, this trend changed in the last 25 and is now a product of technological development.

• The new economic behavior excludes certain population groups which are outside of the market such as informal workers; consequently, the gap between those who can have access to these innovations and those who cannot increases the Gini index. Therefore, “The growth of the economy changed but now its distribution is worse,” said Benavides.

Multiple Choice

What's the Gini index?

• A fancy way to measure poverty.

• A measurment for inequality.

• A measurment for corruption.

Economic policies

One of the tools countries have to correct these trends is through public policies. However, “Fiscal policy has not improved distribution and the economic load finally falls on the individuals.”

For instance, the tax reform of 2017 reduced the number of taxes paid by businesses to only one tax (income tax) and additionally it will decrease gradually until 2019 from 40% to 33%.

Additionally, this reform increased the taxes paid by most citizens, such as the VAT which passed from 16% to 19%, in basic products such as pasta, margarine, cooking oil, cereal, cleaning products, clothing and restaurant food.

Multiple Choice

What's the new tendency in economic growth?

• The most corrupt becomes rich first.

• The most innovative industries are more valued.

Fiscal exemptions to large tax contributors

with measures such as reducing income tax and deductions by acquiring capital goods.

Regressive tax reforms

 E.g. those with better income pay fewer taxes with the justification that they create employment.

Cartelization of legal corporations

a practice which consists of price fixing, limiting supply, or other restrictive practices in order to increase prices in a consolidated manner to avoid competition.

Oligopolies

 In sectors such as banking, which focus offerings to a reduced number of firms and also have a cartelization tendency.

What's an oligopoly?

• ???

It's when few sellers dominate the market and maximize the profit conditions, set prices etc.

The kind of economic growth...

Which does not correspond to the trend of the last years produced by sectors such as the oil industry and not technological innovation.