Even in the current climate of economic reform overtaking Athens, tax evasion rates remain startlingly high in Greece, with an estimated one in four economic transactions going unrecorded. In fact, a recent report conducted by Stephen Hall, an adviser to the Bank of Greece, finds that two out of three Greek employees are declaring figures less than their actual incomes – and, in some instances, aren’t declaring anything at all.
This is not a new or peculiarly Greek phenomenon. In Europe generally, about 19% of all economic activity goes unrecorded. But based on research dating back to the 1990s, “tax morality” among Greeks is particularly low – the 22nd lowest among 26 European countries. Furthermore, Transparency International finds that the Greek public sector is more corrupt than that of any other European Union member state. Unsurprisingly, Greeks are reluctant to blindly fulfill their tax obligations.
Greece has a remarkably high percentage of self-employed citizens – a key facilitator of tax evasion. The incentive for Greeks to remain self-employed is self-evident; the Greek government collects a staggering 43% of total labor costs, compared to a 26% average in other countries of the developed world. The shadow economy helps Greeks profit individually, but it also severely limits the state’s ability to properly collect taxes and provide public services.
Before Greece joined the Eurozone, the country was capable of reducing the level of debt through higher inflation. This option is no longer available; the country has submitted to the monetary policy set by the European Central Bank (ECB). Furthermore, the shadow economy also hinders business development. The productivity of “gray” companies is strangled because they do not have easy access to loans. Non-productive companies, meanwhile, pay low wages.
The Economist recently featured an extensive article on tax evasion in Greece. “The best cure, though, would be a sustained economic expansion. According to the European Commission, Greece will grow by 0.6% this year and 2.9% next. Unemployment in the second quarter of 2014 was 3.6% lower than a year before. As unemployment falls and wages rise, the urge to go underground will wane. At any rate, that is what happened from 1993 to 2003, when growth averaged 2.5% a year and the shadow economy shrank by a third,” concludes the piece.