Some facts about Colombia...

In a few days, I'll be heading towards Colombia, a country I don't know too much about, besides those news insistently talking about violence and cocaine laboratories in the middle of the jungle. I'm really excited about it. I've travelled to Ecuador, Peru and Bolivia for professional issues, but never to this country nor Venezuela (in august I'll travel there for a wedding). These five countries conform the Andean region, a place in the world characterised by its diversity, both human and geographical.

I've been searching in the Internet about some info, and I came across this article written by James A. Robinson from Harvard University, which look pretty interesting: "A Normal Latin American Country? A Perspective on Colombian Development"

Besides that, there are some main characteristics which I think Colombia share with its neighbours (I'll test them out while listening to cumbia) and crucially weaken its institutions and thus, its development prospects:

• States are fragile and do not reach the whole country (important levels of corruption, inefficacy of the public initiatives,
  
• Inequality (economic and social) hampers the consolidation of a common and shared view of the country in the social imaginary. Consequences: the most important source of state revenues are indirect taxes and all five countries are major exporters of labourers.
  
• Geographic disparities within these countries determine important economic and social development differences across regions
  
• The political systems of representation are fragile and incapable of aggregating the different needs of country
  

Unfortunately, Colombia suffers from another two crucial issues: high levels of violence from paramilitary forces, revolutionary groups and the army, as well as from the illicit activities related to cocaine production. Both seem to be closely related. Besides the instability that both issues generate at the institutional level, they have generated around of 3 million of displaced people!

@ marginal revolution there is another interesting post (and discussion) about this country.

The importance of taxing for development... the case of Latam

During the past year, and thanks to the funding of the Fundación Carolina, me and a colleague at the IIG, we have been able to research on the difficulties of reforming tax systems in the Central Andean region, more concretely: in Bolivia, Ecuador and Peru.

Why reforming? It seems pretty clear that these governments are incapable of obtaining the necessary resources to fulfill their main duties and responsibilities (those assigned by the society). In addition, in those countries there exists a widespread perception that taxes are collected in an inadequate manner (that is, inequitably and very complicating). The same negative perception appears when asked about public expenditures. The great majority of society perceive that taxes are spent inefficiently and rampant corruption facilitates misappropriation.

As a consequence, fiscal policy in these countries is trapped in a sort of vicious cycle by which people tend to do whatever they can to avoid paying taxes, whereas those in government lack the incentives to offer adequate public services such as education and health. The access to easy money, imposing taxes on activities to natural resources deepens these sort of problems.

Our main hypothesis relied on the idea that inequality and institutions (either formal and informal, and endogenously explained by this same inequality) play a great role in explaining the distortionary tax system prevalent in the region (low tax pressure, low redistribution, limited tax bases, progressive direct taxes on paper not in practice, tax system biased towards indirect taxes,...)

In a recent post on marginal revolution about economic heterogeneity in Latin America I came across this other interesting post on the necessity to spread the use of property taxes in developing countries.

Additionally, the necessity to achieve a new fiscal pact is achieving more and more importance in the developing agenda (especially in the LATAM region). The research department from the Inter-American Development Bank has recently edited a special issue on this important ingredient for the development recipe (here in English and in Spanish) which supposes an interesting start for those of you interested in this key issue!

Inequality lies in the heart of the "underdevelopment problems" in LATAM. Facing them becomes crucial, and constructing better public institutions with more resources seems to be a good first step! More on this issue to come!

Constituency fever in the Andes...

During the last few years, two countries in the Andean region, Bolivia and Ecuador, have lived important political changes. Most of these changes have occurred far from the institutional framework established for that purpose, and presidents in both countries have to, literally, flew away, incapable of achieving better conditions for their citizens even in front of economic dynamism (beside other causes, of course. It's always impossible to determine consider one single cause) .

Clientelism, corruption, and social deslegitimacy have been the main characteristics of the traditional political parties and the political system of representation (few years ago, at the IIG we published two interesting governance country profiles of both countries -in Spanish. Here for Bolivia, and here for Ecuador).

As a consequence, new political figures emerged. Both, Correa and Morales gained the top job claiming for the necessity to make deep changes in the "rules of the game" (be they related to the economic, the political and even the social arena). And this "sweeping behind the carpet" has its immediate translation in the calling of a Constituent Assembly to define and develop a new Constitution.

Both countries have in common different issues which one have to keep in mind when trying to guess the final consequences of these strategies:

- the extraordinary income inequality sustained in pervasive social pacts dating back from the colony (with critical consequences if we consider the institutional framework present in both countries, incapable of avoiding the translation of economic power into social and political power) - closely related, both countries are physically and geographically divided, with local and regional governments pledging for new duties and attributions (more power!)
- and finally, both countries have very demanded natural resources (to see my previous thoughts about the gas issue in Bolivia, have a look at this -in Spanish, though!)

I do think these countries need important institutional reforms. The actual institutional setting has disproportionally benefited a minority of the population (the rich ones). However, I do not think a great reform, such as the elaboration of a new Constitution, will achieve its pretended goal: solve all the numerous and deep rooted problems in these two countries. Not only the lack of consensus in the definition of this new Constitution, but also the lack of consensus in the procedures and steps to be taken are maintaining both countries in a permanent situation of social unrest. Furthermore, in the meantime as well, both countries are experiencing a dangerous concentration of power in the hands of their respective presidents. Given the multiple and divergent positions (i.e. polarization), it would be better to refind the consensus and "repair the holes, rather than starting to build a new house".

However, how to change the rules of the game when the rules to change them seem to be biased?