It appears to be even more acute in Greece; according to several studies, tax evasion in our country is substantially higher than in other developed countries. This is a summary of the basic results.
T he exact scale of tax evasion in Greece is obviously unknown. We can only rely on estimates that calculate its scale based on indicative data but, by definition there is no available information to measure its exact size. We gathered estimates that have been published on all different types of tax fraud, and we arrived at a range that may appear arbitrary to a certain extent, but which does present the closest estimate one can get from data that is available. According to the studies:.
Revenue lost due to personal income tax evasion ranges from 1. An additional 3. Losses from alcohol, tobacco and fuel smuggling amount to about 0. For legal entities, revenue lost from tax evasion and tax avoidance is estimated at around 0. The study of different types of tax fraud can provide some extremely interesting insights, debunking several long-standing myths.
For example:. This is income that, along with social security payments, insurance revenues, and loans from the European Union together must cover all state expenses. This is important. The tax systems of most developed countries rely more on direct taxes for that reason. It is mostly developing or third world countries that rely more on indirect taxes. There was a rapid decline in income tax collected from During the crisis, citizens pay around the same direct taxes that they paid before, despite the fact that they have much lower incomes than before.
B ut who is paying taxes? It appears that, up until the first few years of the crisis, it was generally the rich who were bearing the county's tax burden. In Greece in — the last year for which analytical official data from the GSPW are available — 5.
In other words, 2. The situation is similar when it comes to businesses. In Greece in , there were , businesses that declared less than 1. The latter category, which makes up 0. In their large majority, they are highly paid salaried workers and large businesses. The great majority of revenue from income taxes came from them. This appears to be changing, however. T here is a truth that is more or less valid throughout the world: the self-employed and small businesses avoid paying their taxes.
From the United States to Germany, and from Italy to Bulgaria, there are small businesses and many freelancers that fail to accurately declare their true income to authorities. Greeks earning less than 12, euros per year are obligated to pay real estate taxes and are not completely exempt from all taxes under the system. Citizens in the lower income bracket also contribute "to the national purse through the hefty value added tax, which is paid on all purchases of goods and services, as well as property tax on levied on purchasers and holders of real estate," the ministry's press office said.
As part of the bailout agreement with the EU and IMF, austerity measures will cut Greek pensions, except those in the lowest income bracket. The agreement, however, did not address any issues with the tax fraud investigation and how it may affect these new austerity measures. Most of the austerity measures that are part of the bailout plan will, and have, affected the lower-income workers who do actually earn less than 12, euros per year, spurring many of the protests across Greece.
That's the downside of the austerity program," he added. A service of the ZBW. By Michael Mitsopoulos , Theodore Pelagidis. Greece has the lowest public receipts of all the eurozone members, and this contributes significantly to the annual budget deficits and the extremely high level of public debt.
The source of this shortfall is personal income taxation. The following article analyses the distortions in the labour market and in the taxation system which have led to this situation and points out where changes should be made.
But despite that, many structural weaknesses continued to prevail, and in many cases they even deteriorated. During the last 15 years, Greece substantially succeeded in improving the standard of living of individual citizens, but it continued to lag behind in the organisation of its society, the quality of its economic institutions and the ability to provide public goods to its citizens.
So, when the global economic crisis hit, all the failings that had not been dealt with during the past decades surfaced in a forceful way at the same time that the growth performance of the past years petered out.
To identify a strategy that can deal effectively with these failings we need first to understand the basic shortcomings of the Greek economy — the distortions and the bad incentives that are built into its institutions.
Then we need to identify the crucial links that could trigger a wave and a domino effect of progressive structural reforms. Such a wave would amount effectively to a relocation of the Greek economy and Greek society to a new, socially superior equilibrium, which would imply that Greece would become, in all respects, an equal member of the privileged club of developed countries.
In this context, this paper focuses on one particular, but crucial, aspect of the distortions in the Greek economy: the distortions in the labour market, the consequences these distortions have on taxation and the political economy implications of these particular distortions. The fiscal implication of these distortions is reflected in the fact that Greece is the country with the lowest public receipts among eurozone member states.
With the following exposition we aim to demonstrate that the elimination of this revenue shortfall needs to be accompanied by a reform of the labour market together with a rationalisation of the tax rates, and that such reforms are directly linked both to the ability of the country to ultimately manage its sky-high public debt, since this contributes significantly to the yearly budget deficits that have created and that propagate this debt, and to its ability to ensure a level playing field in the labour market.
One of the most salient differences between Greece and the other OECD countries regarding taxation 2 seems to be the impressive progressivity of average personal income taxation rates, excluding social security and payroll taxes, together with the high absolute value of the total wedge after social security contributions have been added, especially for the lower income brackets. Keeping in mind the OECD observation regarding the progressivity of the tax wedge, we proceed to look at data for June from the Greek Institution for Social Security IKA , where all salaried employees are insured.
This data shows see Figure 1 how the distribution of wage-earners in the different income brackets corresponds to the wedge introduced by income tax and social security contributions.
Here average income tax is computed as a percentage of earnings gross of tax and net of social security contributions for each income bracket. To this tax, as a percentage of these earnings, we then add the social security contributions for the employer and the employee, as a percentage of the wage gross of taxes. In any case, regardless of how the wedge is computed, it is clear that a significant mass of wage-earners is located in a small band of monthly remunerations, for which the burden of the tax and social security contribution wedge is minimised as a result of the low income tax burden, given that social security payments in Greece are a constant percentage of salaries up to a certain high threshold.
Furthermore, this concentration abruptly falls off at the level of the minimum wage, which strongly suggests the existence of a binding constraint as suggested by Neumark and Wascher. We can also see that for workers with a gross salary of about euros per month 4 who were first insured before , and with about twice that for those first insured after that date, pension rights and the related contributions are no longer increasing, and as a result the average wedge as a percentage of earnings starts declining.
Not surprisingly, there seems to be a large number of earners of such high salaries who, however, form a gradually falling tail of the distribution if the income brackets of salaried incomes of over euros per month are fully extended. As a result, the finding of the OECD regarding the impressively high progressivity of income taxation seems to be complemented by the finding that a large concentration of employees is in the income bracket with the smallest average wedge that ranges from the minimum wage to the upper limit of a wage bracket that remains close to the minimum wage.
Also, it seems that there is a relatively high concentration of earners at higher wages, where the wedge declines again as a percentage of total earnings. The fact remains, however, that until the year Greece had one of the most progressive personal income taxation laws among the European countries in our sample, as can be seen in Table 1. This follows not only because Greece has probably the highest level for tax-free income with the exception of the much wealthier France and some wealthy Scandinavian countries which, however, have significant local taxes.
It also follows because until it used to increase the tax rates for the next income brackets in a way broadly comparable with that of other countries, and in spite of the fact that it applies the top income bracket for relatively high incomes. Regarding the relatively high level for tax-free income, it has to be noted that many other countries prefer the introduction of tax credits or deductions if certain prerequisites are met.
This is a different approach from the unconditional one of tax-free income up to a certain level that is adopted in Greece, even if this condition is paired with the submission of receipts for consumption as is now planned, even though the effectiveness of this measure has still to be proven. Note: Tax rates increase linearly with income between the percentages listed. It seems, therefore, that the minimum wage emerges as being very important in Greece, not so much because of its absolute level, which is about average when the minimum wages in other countries are taken into account, but because of its proximity to the main mass of the distribution of wage-earners Figure 2.
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