A targeting policy for tackling inequality in the developing world: Lessons learned from the system of cross-subsidies to fund utilities in Colombia

This paper contributes to the discussion on policies for providing utilities and on their contribution to reducing inequality. The uniqueness of the Colombian scheme to target subsidy beneficiaries and contributors provides valuable lessons for policymakers, academics, and urban planners regarding the difficulties and implications of such a segmenting government intervention in countries of the Global South. Among the unintended consequences of the scheme are deepening spatial segregation, distorted economic incentives, and poor correspondence of the welfare system with stratification categories. •Colombia's stratification system does not reflect individuals’ socioeconomic progress.•The stratification system has several limitations to accomplish its goals over time.•A stratification system to funding utilities should accomplish tax-progressivity.•A comprehensive stratification system to funding utilities must include households' several dimensions.