The fiscal crisis: a barometer of the strained relationship between the government and the Colombian public
The problems with the Colombian tax system are not merely technical flaws, but rather the expression of a political and cultural balance with roots in the colonial era. A research1 by Leopoldo Fergusson explains how this status quo has been maintained and what its consequences have been for the country.
By Samuel Bautista Silva2 and Nicolás Moreno Gutiérrez3
The list of problems with the Colombian tax system is well known. So far in the 21st century alone, Colombia has passed 14 major tax reforms—more than one every two years. Tax revenue comes mostly from businesses. While in OECD (Organization for Economic Cooperation and Development) countries, personal income tax accounts for nearly 50 % of tax revenue, in Colombia that percentage is just 15 %. And among 18 countries in Latin America and the Caribbean, Colombia forgoes the most revenue due to tax exemptions—nearly twice as much as half the region.
Added to this is minimal redistributive capacity. When comparing the Gini coefficient—a standard measure of inequality ranging from 0 (everyone earns exactly the same) to 1 (a single person holds all the income)—before and after taxes and transfers, Colombia is one of the few countries where the tax system barely makes a dent in inequality.
So far, the story is a familiar one. Technical analyses abound, reforms pile up, and yet the problems keep coming back with the same stubborn persistence. Why? To answer this question, Fergusson proposes viewing the Colombian tax system not as a collection of technical flaws to be corrected, but as the fiscal manifestation of a deeper political and cultural equilibrium.
From this perspective, the tangled web of tax regulations, the instability of the system, low tax compliance, budgetary rigidity, and endless exemptions are not isolated problems, but rather symptoms of a country built on extractive institutions, extreme inequalities, and cultural norms that reward individual solutions over collective ones.
Tax problems are not isolated failures, but rather symptoms of a deeper political and cultural imbalance.
A society that never learned to trust
For Fergusson, the most distant historical roots lie in the colonial legacy. Colonial powers in much of Latin America established institutions that prioritized resource extraction over development, designed to benefit a small elite. Those institutions entrenched inequality and stifled long-term growth.
Colombia is a clear example. Inequality remains unchanged: the richest 10 % have accounted for nearly 60 % of pre-tax income over the past four decades. Even more troubling, the best available estimates suggest that between 50% and 60% of these disparities stem from inequality of opportunity —circumstances beyond people’s control, such as the place and socioeconomic conditions into which they are born—and not from individual effort.
It was on that ground that the rules took root. Fergusson draws on two colonial figures to understand the present: the “I obey, but I do not comply” of subjects who accepted royal authority, but avoided complying with what they considered impractical, and the “indigenous cunning” of those who read the rules shrewdly, exploited their loopholes, and managed to survive exclusion.
This gives rise to what the study calls—following other authors—“unbridled individualism”: the individual who seeks an advantage where formal rules are not respected. When public institutions operate on the basis of favoritism and do not enforce universal rules, the individual strategy of exploiting loopholes in the system becomes rational and, in a sense, legitimate.
“Don’t be a snitch”: the rule that stifles cooperation
The Colombian expression “no sea sapo” (and other equivalent expressions in Latin America) encapsulates this culture. In the study Anti-social norms, Fergusson, Guerra, and Robinson analyze how this everyday norm discourages people from getting involved in others“ affairs and from reporting misconduct. This norm, writes Fergusson, allows Colombians to live alongside others as if they were strangers: ”a society without society, which is nothing more than the sum of individuals.”.
This cultural pattern did not arise in a vacuum. It gained momentum during La Violencia, the bipartisan conflict between Liberals and Conservatives that, between 1948 and 1958, left hundreds of thousands dead in Colombia. When reporting a neighbor’s political affiliations could cost you your life, being a snitch became dangerous. Silence became a survival strategy. And the violence, in turn, was a reflection of extractive institutions that never managed to establish universal rules. Cultural norms and institutions evolved together and reinforced one another.
But what does this have to do with taxes? A rule that discourages meddling in other people’s affairs also weakens social sanctions against those who evade taxes, against those who accept the “If you don't have a receipt, we'll give you a little discount”, against whom exchange a vote for a seat.
The Trap of Weak Public Goods
There is a second factor that helps explain why the balance is maintained. What Fergusson has called the “the trap of weak public goods.”. When the government provides poor-quality services, people who can afford it prefer to pay for private services, and in doing so, they stop pressuring the government to improve public services. Without that pressure, public services remain poor, and those who cannot afford private services are stuck with substandard ones.
The case of security speaks for itself. Colombia has fewer police officers than would be expected given its GDP per capita, but the number of private security personnel is well above the international average. The study’s conclusion is clear: it’s not that there are no resources; it’s that they have been privatized.
It's not that there aren't any resources; it's that they've been privatized.
The same is true for education. Private school enrollment increases with household income. And yet, only the most expensive schools show clear academic advantages over public schools. If parents pay for expensive schools, even though their children don't necessarily perform better on tests, what are they buying? According to the book The fifth door, largely a matter of social distinction. Names that evoke elite institutions, networks of contacts, and shared codes.
That segregation leaves its mark beyond the classroom, as demonstrated by Accents as Capital, the study by Fergusson, Garbiras, and Weintraub. In this study, the authors conducted an experiment with 6,000 participants in Bogotá; profiles with upper-class accents were consistently preferred over those with lower-class accents across nearly all evaluated dimensions: trustworthiness, empathy, suitability as a boss, and job suitability. This preference persisted even when income, education, and experience were equal across all profiles. Accent alone is enough to result in unequal treatment.
If even the way we speak functions as a social boundary, how can we build a social contract based on the idea of a shared destiny?
Cronyism as a Colombian “solution”
Demands for redistribution, however, do not disappear. When a country has levels of inequality like those in Colombia, pressure for some form of redistribution is inevitable. Different countries have responded in different ways; many in Latin America have seen waves of populism that offered short-term relief but rarely transformed institutions.
Colombia took a different path. What the Nobel laureate in Economics James A. Robinson He calls it “highly efficient patronage,” a system that absorbs distributive pressures through personalized exchanges—votes for favors, contracts for campaign contributions, and tax exemptions for legislative support—without altering the underlying structures.
For Fergusson, this explains a paradox often observed in Colombia: that of relative macroeconomic stability coexisting with enormous social deficits. The elites can privatize security or education, but they cannot privatize the dollar exchange rate or inflation. Thus, a tacit agreement emerged among the elites: macroeconomic stability is maintained, ties with the social base are managed through patronage, and the big structural questions—how do we collect more revenue? how do we redistribute wealth more effectively?”, are postponed.
Clientelism fits in with all of the above. It is a way of privatizing the public sector and politics because citizens do not demand universal services from the state; instead, they ask their political patron for a specific favor. Politicians do not hold themselves accountable to the electorate for policies; instead, they offer a one-time benefit in exchange for a vote. Each party minds its own business, as dictated by the rule of “don’t be a snitch.” And, collectively, the social contract is hollowed out, and the The state is weakening.
Why doesn't tax evasion feel like theft?
In light of the erosion of the social contract and the deterioration of the commons, the question arises as to what role individuals play and what motivates their behavior. The study Consumers as VAT “Evasion”: Incidence, Social Bias, and Correlates in Colombia, Based on a large sample of Colombian households, it estimated that about one in five people make purchases without a receipt to avoid paying VAT.
How can we make sense of this shamelessness? Citizens derive a very convenient excuse from the perception that taxes are illegitimate, given that the government is captured by narrow interests. Consequently, tax evasion is not seen for what it is—the theft of public funds—but is rather perversely understood as a way to avoid being robbed.
Tax evasion is not seen for what it is—the theft of public funds—but is instead perversely understood as a way to avoid being robbed.
A paradoxical situation arises here. Individually rational practices, such as tax evasion, produce outcomes that are detrimental to the collective good and ultimately weaken the very state that is distrusted. This sets off a vicious cycle that limits the state’s capacity. In turn, a state that delivers fewer public services further legitimizes that distrust.
So far, the picture is bleak. But just as Ferguson’s work does not seek to succumb to complacent optimism, neither does it aim to overlook the undeniable social and political progress made in Colombia. This brings us to recent developments, from the 1991 Constitution to the present.
To measure this, Fergusson, Molina, and Riaño first used an indirect method: the person looks at a list of behaviors and states only how many they engage in, not which ones. Therefore, they do not individually reveal whether they shop without a receipt. Then, the researchers asked the question explicitly. With the explicit question, 19.3 % He admitted that he had made purchases without receipts to avoid paying VAT. The indirect estimate was very similar, around 18 %. This equivalence indicates that people have no qualms about openly admitting to the behavior. Evasion does not cause embarrassment or carry a social stigma.
A government that delivers less only serves to reinforce mistrust.
The 1991 Constitution and Today's Crossroads
The 1991 Constitution was a real shake-up to the old balance of power. It defined Colombia as a “social state governed by the rule of law,” expanded the range of social and economic rights, deepened decentralization, and opened the political system to forces that had previously been excluded. In health care, coverage expanded from about one-fifth of the population to more than 90 % in just a few decades, and public education grew. In short, the state became a part of the daily lives of many more people.
But the other half of the bargain—paying to sustain it—did not keep pace with the state’s growth. Colombia spends like a middle-income country but collects revenue like a significantly poorer one. Since 1991, the central government has typically operated at a deficit. By 2025, the projected primary deficit was around 3 % of GDP, the total deficit was close to 7 %, and public debt hovered around 60 % of GDP.
The reason is that old customs did not disappear; rather, they coexisted with new demands. The result is a government that is more responsive but cannot find a way to finance itself—and a public that demands more but continues to resist cooperating and contributing collectively to cover the cost.
What would it mean to renew the covenant?
When Fergusson argues that Colombia is at a crossroads, he is not referring to a technical dilemma. He is talking about two possible paths. One leads to a renewed fiscal pact, a more inclusive political order, and a reformed tax system that underpin a capable and legitimate state. The other leads to a costly but substandard state, in which partial tax reforms coexist with growing pressure to increase spending. On this path, the state takes on ever-increasing debt and still fails to deliver the public goods that citizens demand.
Renewing the Covenant: A Perspective from the Study Colombia’s Missing Fiscal Pact: The Political and Cultural Foundations of Weak Taxation, It’s about much more than raising taxes. It’s about closing the loopholes through which tax exemptions slip in with every reform. It means undermining the logic of patronage. It means reducing the incentive to outsource—to privatize education, public safety, and healthcare—so we can invest in the public goods that work best when we share them. It means building trust among citizens and trust in the state, which is the broadest common ground for our collective initiatives.
For the average citizen, this transformation requires changes in those decisions which, although often taken for granted, underpin the weakness of the fiscal pact: buying without a receipt to avoid paying VAT, justifying behavior because «everyone does it,» or voting for a candidate who offers favors instead of concrete plans. Colombia stands at this crossroads: continue treating the symptoms with one tax reform after another, or transform the political and cultural balance that perpetuates them.
- Colombia’s Missing Fiscal Pact: The Political and Cultural Foundations of Weak Taxation. ↩︎
- Samuel Bautista Silva is a digital storyteller at the Universidad de los Andes. ↩︎
- Nicolás Moreno Gutiérrez is a law student at the Universidad de los Andes and a communications assistant at TREES ↩︎