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Greek Tax Evasion

by marco Fri Jul 10th, 2015 at 05:07:56 AM EST

In July 2012, a paper titled Tax Evasion Across Industries: Soft Credit Evidence from Greece was published by Nikolaos T. Artavanis of the University of Massachusetts at Amherst, Adair Morse of Berkeley's Haas School of Business, and Margarita Tsoutsoura of the University of Chicago's Booth School of Business.

The paper was referenced by The Wall Street and in turn by The Washington Post that summarizes:

Comparing bank data with government data, the authors found that the true income of the average Greek person is about 1.92 times larger than what's actually reported to the government. In 2009, that shrunk the tax base by about $34 billion. Assuming that money was taxed at a 40 percent rate, that's 31 percent of the country's budget deficit in 2009 right there.


The paper also contains a map:

... showing the top zip codes that avoid taxes in Greece. Note that it's not just limited to Athens; the authors found that Greek tax evasion is rampant everywhere, and prevalent across all income groups. (The circled area is Larissa, which, depending on what hearsay you believe, may or may not have a suspiciously high number of Porsche Cayennes registered.)

Finally, a theory is provided as to why such egregious tax evasion could not be stopped:

The authors note that Greek officials seem to have a very good idea of who's avoiding taxes: In 2010, the parliament took up a bill that specifically targeted doctors, dentists, lawyers, architects, engineers and so forth. As the authors note, these are precisely the groups evading the most taxes (largely because they receive much of their income in bribes). But the crackdown bill failed -- possibly because, as the authors discover, these are the professions best represented within the Greek parliament.

Of all the criticisms laid on Greece, the one of tax evasion strikes me as the most important, because it makes it so much easier to have less sympathy for the Greek people in general, and not only their incompetent and corrupt leaders.  So I wonder:

  1.  Has the problem of tax evasion been significantly worse in Greece among hoi polloi (not the rich and powerful) than in other developed countries (in particular Eurozone countries)?

  2.  If so, is it possible that around 31% of Greece's budget in 2009 was due to this tax evasion?

  3.  Besides demanding higher taxes, have Greece's creditors also demanded concrete plans to improve tax collection?

  4.  What, if anything, has the Greek government or Syriza proposed to address the tax evasion issue?

Regarding the fourth question, apparently there was some response by the government in 2012 to the paper:

Assistant Professor Adair Morse received the 2013 Best Empirical Finance Paper Award at the Western Finance Association Meeting for an article on Greek income tax evasion that attracted significant media coverage and helped shape tax policy. ... Morse shared the award with her co-authors, Margarita Tsoutsoura of the University of Chicago Booth School of Business and Nikolaos Artavanis of the University of Massachusetts, Amherst.

"Their work has received unprecedented media coverage and has already ushered in significant changes in the Greek tax policy," Wharton Research Data Services wrote in announcing the award, which was presented at the Western Finance Association conference in June.

The trio's widely cited paper, "Tax Evasion Across Industries: Soft Credit Evidence From Greece," examined Greek income tax evasion, banking, and credit. Morse and her co-authors found that wide-scale tax evasion in Greece accounts for at least $28 billion Euros in unreported taxable income - just among the self-employed. Using bank data on household borrowing from 2003 to 2010, they found that highly paid, highly educated professionals are at the forefront of tax evasion in Greece, including doctors, engineers, private tutors, financial services agents, accountants, and lawyers. ...

The researchers infused this new insight with the observation that Greek banks have learned to adapt to an economy where income is often hidden to remain competitive.

The team's research was presented in Greece in September 2012 and already the Greek government is making policy changes in response to it. The Greek government has decided to eliminate tax-free income and is shifting to a model in which professionals carry some of the burden of proof of not having hidden income. ...

Morse Honored for Research on Greek Tax Evasion
August 12, 2013

"is making policy changes"
"has decided"
"is shifting to a model"

So what has changed in fact rather than just in words and intentions since then (assuming the Greek evasion issue is indeed a mountain and not a molehill)?

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just saw this:

Tax collection: an autonomous tax revenue agency will be established and the government will enact reforms to streamline tax collection, track down tax cheats and combat fuel smuggling.

Key points: Greece's proposals to help end talks deadlock | The Guardian



Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire
by marco on Fri Jul 10th, 2015 at 05:57:37 AM EST
Also:
Policy Commitments and Actions to be taken in consultation with EC/ECB/IMF staff

- adopt outstanding reforms on the codes on income tax and tax procedures: introduce a new Criminal law on Tax Evasion and Fraud to amend the special Penal @aw 2523/1997 and any other releVant legislation and replace Article 55 §s 1 and 2 of the TPC, with a view, inter alia, to modernize and broaden the definition of tax fraud and evasion to all taxes.


"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Fri Jul 10th, 2015 at 03:28:53 PM EST
[ Parent ]
Is this even really relevant? There is widespread unemployment, taxes are jacked up, money is fleeing the country either to pay creditors or for foreign banks. If anything, there is huge incentive now NOT to pay taxes.
by Upstate NY on Fri Jul 10th, 2015 at 10:41:42 AM EST
I think it is relevant to the diagnosis of what was wrong with Greece society leading up to the crisis. It's probably still relevant today for tax policy escept that the Greek government has much bigger fish to fry today than VAT dodging.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jul 10th, 2015 at 11:05:07 AM EST
[ Parent ]
It's very relevant.

If it's true, then it's relevant because it needs to be handled so this shit show doesn't happen again.

If it's false, then it needs to be debunked, because news coverage like this will continue to appear:

SIEGEL: When you say that Greece has failed to make a transition to modernity, what do you mean by that?

PALAIOLOGOS: Well, I mean, basically, that since the beginning of modern Greek history, we have failed on a number of levels to construct a modern, Western-style state with, you know, the rule of law and with proper taxation which will pay for modern services for its citizens. There's obviously been a lot of improvement since the 1830s, to a large extent in the last few decades thanks to the European Union. But it's still the case that most of the Greeks view the state with great suspicion. They don't view it as the embodiment of the common good, and they're reluctant to pay taxes. And then, of course, they complain for the shoddy services they get in return.

SIEGEL: If they don't see the state as representing them, what do they see as representing them?

PALAIOLOGOS: Well, there's a great deal of tribalism connected with political parties or with unions or local interests of various kinds. And people try to use their affiliation to various groups like that to, in a major or minor sense, plunder the state. They get things from it - anything from, you know, government contracts to a government job or, you know, to get the tax man to look the other way when they themselves do not contribute to that state. They see it as something to be plundered and not something to contribute to.

Greece's Financial Crisis Related To Design Of Eurozone | NPR

and this:

Centuries of rule by outsiders have left a disconnect between the citizens and the state and a tradition in which avoiding paying taxes and outwitting that state became a patriotic duty.  ...

Greece is a tough environment for entrepreneurs, says Koufopoulos. "Greeks have a Left-wing heart and a Right-wing pocket. This is a very divided economy. There is a private sector that works very hard and a huge public sector that was has been brought up without taking any risks and an increasing sense of entitlement. People are very strong for socialism, but when it comes to their pockets they don't want to pay taxes." ...

Decades of rule shared between Pasok, the socialists, and the conservative New Democracy party, saw a cosy consensus about patronage networks, says Palaiologos. "Pasok and New Democracy disagreements were about who would run the state and spread the patronage networks. All this relativises citizens' allegiance to the state. They ask, 'why should I pay taxes when the government just lines its pockets?' When roads and hospitals are built, it's without any cost control. " ...

Despite the volatility of national politics, Left and Right agree that things cannot continue as they are. "We need a deep structural reform programme to make the changes that we want," says Papandreou. "Pensions are not the real issue. We need to fix the tax system. Corruption and high taxes lead to more corruption. We have made changes, we have introduced property and luxury taxes, but not enough changes." ...

The Greek crisis reveals a nation crushed by ancient history | Newsweek

etc.

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire

by marco on Fri Jul 10th, 2015 at 11:12:41 AM EST
[ Parent ]
I don't look at ethnic or genetic stereotyping as he does. This is NOT a question of Ottoman mindsets, etc.

It's a matter of non-functioning gov't. The tax evasion thing comes at the very end of considerations for me.

First, Greece is overloaded with small businesses related to tourism. They are always going to have a tax evasion problem.

Second, Shipping accounts for 15% of GDP, which makes the tax evasion calculation look worse than it already is.

For example, Greece had 40% of GDP in tax revenue for years. More than enough to pay for necessary services. When you consider that 15% of the GDP was legally untaxed (shipping), that figure should rise even higher.

Then also consider that Greek tax evasion has to be compared to tax evasion elsewhere.

The Greeks have a lot of it, but not so much more that a dent into it is going to change the dynamics of the economy.

Check out this paper here that shows that 14% of the population was responsible for the 28% tax evasion, because the others lived by paycheck (i.e. they were taxed at the source.)

http://eprints.lse.ac.uk/26074/1/GreeSE_No_31.pdf

by Upstate NY on Fri Jul 10th, 2015 at 01:48:02 PM EST
[ Parent ]
The tax evasion thing comes at the very end of considerations for me.

Really? So what is at the top of your considerations about a better functioning government?

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Fri Jul 10th, 2015 at 03:50:37 PM EST
[ Parent ]
1. Corrupt officials go to jail. I start there. 2. Taxes go to functioning gov't (i.e. debt relief necessary). 3. The black market (reassign military unit to interdicting the black market).
by Upstate NY on Fri Jul 10th, 2015 at 05:20:29 PM EST
[ Parent ]
These shipping magnates threatening to relocate, are they willing to renounce Greek citizenship?

Seems idiotic to sabotage the small tourism businesses, seems typical how predatory capitalism cannot allow any shoot of success to occur without wanting to squash or own it. what they should do is lower taxes on small businesses to encourage more tourism, instead of throttling their (practically only) rebounding sector, which if managed properly could raise visitor numbers exponentially. Let them get ahead before upping taxes! They may be in debt and need time to get out from under it.

Europe should unite against offering new locations for tycoons to avoid paying taxes in their native country, and should nudge Switzerland, Monaco, et al to comply with this.

If Europe wants to get back its honour in 'practicing economics as if people mattered' it better move fast to install more fairness against its financial industries and those who have been using Gvt funds (and unholy amounts of EU money) as ATMs. These ripoffs should be traced and returned to the treasury stat, perps prosecuted.
Actions this radical would go a long way towards soothing the predators creditors' fears and counter the propaganda in the German gutter press, (who should be also sanctioned for shitstirring at such an critical and inflammatory moment in European history).

Another incidence (like the Hebdo and Danish cartoons) where an absolute fetishisation of free speech has been tantamount to tossing a lit cigarette out of a car window into forest tinder in a drought.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Jul 10th, 2015 at 08:16:31 PM EST
[ Parent ]
During the crisis, Greek businesses have relocated HQs all over the eurozone, for tax advantages. Some mining companies even established mailbox HQs in Holland for this purpose.
by Upstate NY on Sat Jul 11th, 2015 at 08:51:54 AM EST
[ Parent ]
Not only tax advantages. Youd want a foreign bank account, too.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jul 11th, 2015 at 09:34:38 AM EST
[ Parent ]
Oh yes, I totally forgot about that. Greek Coca-Cola bottler, a stalwart in Greece for decades, gave it up for this reason.
by Upstate NY on Sat Jul 11th, 2015 at 11:55:31 AM EST
[ Parent ]
Except these are 2009 figures, not yet impacted by austerity policies... So what was the incentive not to pay taxes, then?

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Fri Jul 10th, 2015 at 03:58:44 PM EST
[ Parent ]
Lack of services and functioning gov't; corruption, and the #1 reason: because you could.
by Upstate NY on Fri Jul 10th, 2015 at 05:18:23 PM EST
[ Parent ]
I remember this article, it was an amusing demonstration that the problem of tax evasion is likely to be concentrated in VAT dodging by liberal professionals.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jul 10th, 2015 at 11:03:00 AM EST
Can VAT evasion account for $34 billion in lost tax revenue for one year?

Weren't there other taxes involved?  Income taxes?  Property taxes?

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire

by marco on Fri Jul 10th, 2015 at 11:16:50 AM EST
[ Parent ]
That's under 20% of GDP, about the order of magnitude of the nominal VAT tax bill. Of course not everyone dodges VAT so there must be other taxes involved.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jul 10th, 2015 at 11:21:35 AM EST
[ Parent ]
Considering there was no property tax up until a couple years ago, the current property tax evasion is a new phenomenon. But again, it has run into the problem of the depression. 85% of Greek own their own homes. Many went without power (mandatory power cuts for those who didn't pay property tax) rather than pay the tax.
by Upstate NY on Fri Jul 10th, 2015 at 01:49:55 PM EST
[ Parent ]
Because the Troika decided the property tax should be levied through the utility bill.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jul 11th, 2015 at 06:05:35 AM EST
[ Parent ]
Looks like Ireland thirty years ago: tax evasion was endemic, but most employed workers had their money taken out of their pay packets and couldn't avoid taxes.
by Colman (colman at eurotrib.com) on Fri Jul 10th, 2015 at 11:06:22 AM EST
"They don't do philanthropy, they don't pay taxes, and they don't start businesses"

Vernicos says it would be unwise for the government to antagonize ship owners by dramatically raising their taxes. He points out that Greek shipping companies already agreed to a "voluntary" increase in their tax burden in 2013, collectively offering an extra 105 million euros in annual revenues to the government through 2017, when the agreement will expire. But forcing the industry to pay much more would only encourage shipping companies to move their operations offshore. "I need money to buy new ships," Vernicos explains. And if the tax rate in Greece ceases to be competitive, "the banks who finance me, they're going to say, `Mr. Vernicos, we like you, you're very good. But we cannot support you now that shipping [in Greece] is bad and you have to pay tax.'"

...

More broadly, it has become easier to secure philanthropic donations from wealthy Greeks since the crisis began, says Marilena Mamidakis, a shipping heiress who heads a charity for impoverished children and their families. Last Monday, when Greek banks shut their doors to prevent a run on deposits, she says she got a call from one of the wealthiest ship owners in Greece. "He told me, `Anything you need, anything, just ask and it's yours," she says, declining to name the caller. In quiet ways, other wealthy Greeks have been giving back, she says, including through the purchase of guns and fuel for the police force. But she acknowledges that their aid is not always commensurate with the size of their fortunes. "They could buy half of Greece," she says.

Greek Shipping Magnate Urges Tycoons To Pull Their Weight | TIME



Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire
by marco on Fri Jul 10th, 2015 at 11:49:49 AM EST
marco:
In quiet ways, other wealthy Greeks have been giving back, she says, including through the purchase of guns and fuel for the police force.

Doncha just love the journalspeak of this kind of mealy-mouthed American publication? To decode:

"quiet" = secretive, clandestine

"giving back" = sloppy American expression to generate feelgood about the wealthy handing out a tiny portion of what they should normally pay in taxes

"the purchase of guns" for the police = I don't pay tax and let an elected government choose how it's spent, I contribute directly to the functions of state that I consider useful and necessary (and likely to protect me in time of need).

All that with a nice layer of TIME magazine schmaltz spread thickly over the shit. Bon appétit!

I used to be afew. I'm still not many.

by john_evans (john(dot)evans(dot)et(at)gmail(dot)com) on Fri Jul 10th, 2015 at 12:32:48 PM EST
[ Parent ]
I think this may one of those studies where the conclusion is an argument for the methodology rather than the other way around.

The study used as its estimate of the volume of tax fraud the implicit cash flow underpinning the loan decisions of private commercial banks.

Banks have, shall we say, not have an unblemished recent history of evaluating the creditworthiness of borrowers, and it is far from inconceivable that there might be a class bias to the willingness to lend in excess of the borrower's demonstrated ability to pay.

So while the qualitative conclusions seem reasonable, I would not trust the numerical estimates.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jul 10th, 2015 at 04:32:39 PM EST
From what I heard, the islands all operate with diesel-powered plants, wind and solar are mostly missing.

Apparently, the oligarchy earns lots of money shipping diesel to the islands and blocks renewable installations.

5 years to go !

by pi (etrib@opsec.eu) on Sun Jul 12th, 2015 at 05:43:08 AM EST
How fucking predictable is that? Grrr.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Sun Jul 12th, 2015 at 06:03:25 AM EST
[ Parent ]
Just give the islands to Germans, and the renewables will take off.
by das monde on Sun Jul 12th, 2015 at 06:42:01 AM EST
[ Parent ]
"No renewables" is false. There are certainly both wind and solar installations - I have photos. What proportion of power they produce I don't know.
by Colman (colman at eurotrib.com) on Sun Jul 12th, 2015 at 10:30:23 AM EST
[ Parent ]
There is solar everywhere. Wind though is rare.
by Upstate NY on Sun Jul 12th, 2015 at 12:22:15 PM EST
[ Parent ]
I don't know about the islands, nor about PV (one could search). I do know that Greece installed another 114 MW of windpower capacity last year, to bring the total to 1980 MW, or two nukes in installed capacity (not capacity factor). Greece would be at the high end of capacity factors in Yurp, perhaps as high as 30% with wide topological variation.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Mon Jul 13th, 2015 at 12:00:46 PM EST
[ Parent ]
All the islands we were on had windfarms. Couldn't speak to capacity, obviously.
by Colman (colman at eurotrib.com) on Mon Jul 13th, 2015 at 01:52:18 PM EST
[ Parent ]


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