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How big do you think Greek tax evasion is?

It's at 25%.

Now, assume that if Greece were like every other European country, it only had 20% tax evasion.

Well, let's look at its tax collection. It's at 140 billion. 5% of that is 7 billion. That's not enough to cut into a 350 billion deficit. We've only accounted for 2% of a 11-15% yearly budget deficit.

Taxes should be reformed in Greece BECAUSE they are unfair to those who pay. But from a macro perspective outside Greece, here are the numbers reported by Eurostat for the last decade:

Greece collects between 40-43% of its GDP annually. The EU collects 44%.

In Greece, 8% of GDP is collected as income tax revenue. 12% social contributions. 5% corporate. 16% VAT and sales tax.

The actual rate of tax collection in Greece is on par with tax collection in Europe. In fact, I would argue that in Greece, tax collection actually exceeds that of most of Europe when you take into account two factors: Shipping and Tourism. Those two industries account for almost 40% of Greek GDP. Tourism is cash heavy, and outside of using credit cards, I'd imagine its an industry with high evasion. Shipping revenues and profits are untaxed precisely because the ships can register in any port, under any flag. The ship owners pay a tonnage tax for the weight of ships only. So here with shipping we account for 20% of the nation's GDP, but for hardly any of the country's taxes. This literally means that when you back out shipping, the GDP subject to tax is smaller, and thus the % of tax to GDP collected is much higher.

To roll back high tax evasion of high taxes would be a very good thing for Greece, but not a solution. After all, high tax evasion of high taxes already yields more revenue than the low tax evasion of low taxes. In the USA, we have hedge fund managers who pay 15% on earnings.

by Upstate NY on Thu Jun 16th, 2011 at 04:33:31 PM EST
[ Parent ]
Ah well. I calculated that tax evasion would fall from 25 % to 0 %. Or at least to 5 %, the level in Sweden. That should equal about 8-10 % of GDP and hence bring the deficit under control, if not eliminate it outright. Pie in the sky, I suppose.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Jun 16th, 2011 at 05:37:35 PM EST
[ Parent ]
http://www.economist.com/node/16792848

Here's an article about it.

The thing is, you have Junker as a titular head of the EU, an ex-head of Luxembourg which has long batted back EU attempts for some transparency into its "tax paradise" arrangements with some of the worst scofflaws in Europe.

by Upstate NY on Thu Jun 16th, 2011 at 06:35:58 PM EST
[ Parent ]
I'm not sure about the numbers: this paper shows tax evasion ~15% of GDP for Greece - but that includes effectively non-taxable and not reported as GDP, black market economy revenue and thus a figure larger than the figure the Economist is quoting... I can't believe that any northern EU country has anything similar. I should repeat here (I've mentioned it in a comment before) that the M&F paper shows that personal income tax evasion is disproportionately due to the highest income decile in Greece. At the same time corporate tax rates on profits fell between 2000 and 2010 from 40% to 20% , as mentioned here - and that applies to undistributed profits, distributes profit rates' are at 40%, but the net effective rates were (in 2004 at least that I found data) among the lowest in Europe. In fact Greece overtaxes labor and undertaxes profits compared to EU averages even now.

Total revenues in Greece have been less than 40% GDP (but less than that as I mentioned here) an approximately 5% lower number than the Eurozone average that jibes with the 15 billion Euro evasion the Economist article mentions, and I suppose that Greece is on a par with other EU countries in (legal) tax avoidance?

Shipping offers around 7% GDP (here in Greek) and tourism another 15%... Tourism I wouldn't think has a much higher rate of tax avoidance than other industries. Shipping companies and tycoons are almost religiously tax-exempt, not even the income they make from shipping activities is taxed (this again is in Greek, and accurate AFAICT. It lists more than 55 special provisions in the tax code for shipping companies and their shareholders/owners. Quite shocking)

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Thu Jun 16th, 2011 at 08:33:02 PM EST
[ Parent ]
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tec0002 1&plugin=1

This is where I was pulling the tax revenue numbers from, but it also breaks down tax collections by type (income, corporate, etc.)

Interesting about shipping, since I read a number of articles recently that put it at 18% of Greek GDP. I wonder, could this be related to the spectacular deviations in shipping costs? During much of the decade until 2008, Greek shippers were charging upwards of $110,000 a day per ship. By 2009, the rates for shipping dropped to $5,000, so low in fact that companies saved money by refusing contracts, drydocking ships, laying off workers, etc. Many of these companies showed income only from scrapping older ships for metal. I wonder where one might find a year-over-year comparison of the shipping industry.

by Upstate NY on Thu Jun 16th, 2011 at 08:42:22 PM EST
[ Parent ]
Yes, that's where I got the numbers for the charts I drew too. It's near a 4-5% difference between revenues in Greece and the Eurozone average. The shipping rates recovered in 2010 (but are near crash lows in 2011). Check the Baltic Exchange Index history here:

Some numbers on tourism and shipping (2003-2008) here. In Greek.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Thu Jun 16th, 2011 at 08:57:03 PM EST
[ Parent ]
Looking at that chart, I promise never to overstate, understate, or ever state anything about shipping's impact on Greece's GDP.

And people wonder why Greeks are happy-go-lucky.

by Upstate NY on Thu Jun 16th, 2011 at 09:00:02 PM EST
[ Parent ]
I am quite skeptical on the numbers circulating on shipping and tourism contribution to Greek GDP. These number are numbers by their respective lobbies so they tend to be inflated (for example, by including a broad area of services to "tourism"). They both use these data to extract tax concessions from the governments.  I would be happy to ask shipping and tourism lobbies to give figures not only for their supposed contribution to GDP but also to tax revenues (har, har). Their tax concessions on one hand and subsidies they get on the other one are really outrageous.

With a quick look at the official site of Hellenic Statistics I couldn't find data on Greek GDP composition braking down to shipping or tourism. That's why figures quoted by various sources differ significantly. For example, a recent paper by National Bank of Greece quotes shipping as 6.9% of GDP.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband

by Kostis Papadimitriou on Mon Jun 20th, 2011 at 01:29:34 AM EST
[ Parent ]
Maybe you can find the data here...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 20th, 2011 at 01:56:46 AM EST
[ Parent ]
Nope, or I need to change glasses.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband
by Kostis Papadimitriou on Mon Jun 20th, 2011 at 12:08:12 PM EST
[ Parent ]
I am quite skeptical on the numbers circulating on shipping and tourism contribution to Greek GDP. These number are numbers by their respective lobbies so they tend to be inflated (for example, by including a broad area of services to "tourism").

"[W]hen you add up the growth prognosis of all companies of a sector strangely the market is often a lot bigger than it should be..."

- crankykarsten

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 20th, 2011 at 09:00:12 AM EST
[ Parent ]
Shipping is so flush and bust that this alone might explain the different numbers from different sources. Their revenues are not a mystery either since many Greek shippers are public companies. Shipping could be 7% GDP recently, but again, right now business is a bust. It's easy to imagine revenues quadrupling (if not more) in a good economy, and then it becomes a higher % of GDP.

I'd really like to know about the Greek banks and the fact they were started by shipping magnates. What's the relationship between these banks and the shippers who started them. What kind of impact does this have on Greece? It seems to me, should the world economy get going again, the shippers themselves can recapitalize banks in a similar fashion if the old ones collapse, as long as their wealth isn't too closely tied to the banks they created.

by Upstate NY on Mon Jun 20th, 2011 at 09:36:34 AM EST
[ Parent ]
Shipping revenue might increase but I don't remember seeing trustworthy figures over 12% GDP, ever. Do not forget all those patriotic Greek shipowners who have their vessels under many flags of opportunity and the number of their hqs in London...

But see this (p.6) and you realize that as far as shipping is concerned Greece is an international tax haven...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Mon Jun 20th, 2011 at 06:57:46 PM EST
[ Parent ]
So, not only do the shareholders pay no tax, but those working in the offices of these companies pay no tax either!
by Upstate NY on Mon Jun 20th, 2011 at 08:50:14 PM EST
[ Parent ]
and of course the officers can pay the employees less, because they won't be taxed on it of course.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Jun 20th, 2011 at 08:56:31 PM EST
[ Parent ]
I am fairly confident that a not insignificant percentage of higher paid members of staff are family or sons/daughters/etc of serious people / potential allies / partners. They would not be that poorly remunerated, I assume...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue Jun 21st, 2011 at 10:04:45 AM EST
[ Parent ]
Indeed, some of the public companies spread out pay to family members so it doesn't look like the CEO is taking a huge salary. This is the kind of stock that Wall Street loves because there's enough suspicion behind the company officers' motives to draw a lot of short interest. Plus, the fact the company is run by Greeks also attracts short interest. Then the mo-mo guys jump on board, pump the story when revenues in oil drilling and shipping come in, and they squeeze the shorts blind.

Wall Street loves stocks with big revenues and muddy stories. Pump and dump.

by Upstate NY on Tue Jun 21st, 2011 at 10:45:04 AM EST
[ Parent ]

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