[MGSA-L] How Greek tax evasion helped sink the global economy

June Samaras june.samaras at gmail.com
Fri Jul 13 22:03:05 PDT 2012


The interesting part of this article is the map which shows the
areas of Greece where tax evasion is most visible

Use the link below to view it

http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/07/09/how-greek-tax-evasion-sunk-the-global-economy/

June S
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How Greek tax evasion helped sink the global economy
Posted by Brad Plumer on July 9, 2012 at 10:50 am

The euro crisis first started roaring in late 2009, when auditors
inside the newly elected Greek government discovered that the country
had a much—much—bigger deficit than anyone realized. That, in turn,
inflamed fears that Greece couldn’t wiggle its way out of its debt
trap so long as it was tethered to the euro. It also exposed
structural problems within Europe’s currency union. Worries soon
spread to Ireland, Portugal, and eventually Italy and Spain. Now the
entire global economy is on edge.

Nice place. Wonder what sort of property taxes they pay? (Petros
Giannakouris / AP)

But why did Greece have such a massive budget deficit in the first
place? One factor (among many) was rampant tax evasion, which had
starved the Greek government of funds. As it turns out, this was a
very big deal indeed. The Wall Street Journal’s Justin Lahart points
to a new paper (pdf) by three economists who estimate that the size of
Greek tax evasion accounted for roughly half the country’s budget
shortfall in 2008 and one-third in 2009.

How is it even possible to estimate taxes that aren’t ever paid? The
economists, Nikolaos Artavanis, Adair Morse and Margarita Tsoutsoura,
cleverly exploit a discrepancy. Few people in Greece want to report
their real income to the government, since that would mean paying more
taxes. But Greek banks have very solid estimates for how much income
people are actually raking in — the banks need this info to make loans
or to issue mortgages.

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. As Lahart notes, “If Greece’s government was as
adept as its banks at figuring out what its citizens earn, the world
might be a very different place.”
Below is 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.)

A bigger question is why Greece hasn’t been able to crack down on tax
evasion. 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.
In any case, this is hardly the only reason that the euro is now stuck
in a crisis. As Paul Krugman explains in this lecture, the euro zone
has long had all sorts of deep structural flaws that were bound to
combust sooner or later. It just so happened that the spark, in this
case, appears to have been Greek tax evasion.
-- 
June Samaras
2020 Old Station Rd
Streetsville,Ontario
Canada L5M 2V1
Tel : 905-542-1877
E-mail : june.samaras at gmail.com



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