Underground Economy in Greece Is About One Quarter of GDP

The size of Greece’s underground economy — where transactions take place out of the radar of tax authorities — is estimated to be about one quarter of the country’s official GDP, according to University of Macedonia Professor Vassilis Vlachos.

The International and European Studies Department professor presented the results of his ongoing “Thales” study in a press conference on Wednesday. He said that the size of the country’s shadow economy is believed to have increased, despite indirect measurements indicating that this had fallen slightly to 23.5-24 percent in recent years.

According to Vlachos, the lower figures were partly due to statistical errors and also the inherent inaccuracy of indirect measurements, citing as an example the authorities’ failure to measure the impact of migration flows.

The Thales study carried out by Greece’s Shadow Economy Observatory uses a nationwide sample of 15,000 individuals.

Among the main factors contributing to the shadow economy increase, according to Vlachos, is the citizens’ sense that the tax burden is not distributed fairly and that there is a poor return in term of public services, as well as inadequate tax inspections. The professor highlighted the very high percentage of those that don’t pay taxes and contributions as a ‘matter of principle’ (10-20 percent) and the high percentage of undeclared labor.

Based on the findings of the survey, participation in the shadow economy is at 60 percent for the general population and rises to 71.6 percent among the unemployed. Percentage participation in the shadow economy is at 64.6 percent for those working in the private sector, 61.3 percent for pensioners, 60.7 percent for the self-employed, 57.3 percent for business owners and 51.8 percent for public-sector staff.

Business owners are among those most likely to consider their shadow economy activity justified (52.4 percent), followed by the self-employed (50.4 percent), unemployed (46.7 percent), private-sector workers (42.5 percent), public-sector workers (32.4 percent) and pensioners (30.7 percent).

Giving their reasons for evading taxes, four in 10 Greeks consider their activity in the shadow economy justifiable due to the poor return on a high tax burden (82.3 percent), its unfair distribution (77.1 percent) and the low quality and quantity of public services (72 percent).

When deciding whether to evade taxes, 46.6 percent take their cue from what other people around them are doing, 42 percent consider that ‘morality’ is a deterrent for tax evasion and 73.9 percent consider that high fines are also a deterrent.

“Participation in the shadow economy is determined by the difference (on a monthly basis) between the (official) income and expenses of a household. A deficit increases the chances of participation in the shadow economy (either by reducing expenses by purchasing products without a receipt or by increasing revenues through undeclared income),” Vlachos noted. “The high levels of participation in the shadow economy, despite the fact that most citizens consider tax inspections a deterrent, indicates that most consider the chances of an inspection to be very small,” he added.

On undeclared labor, the professor said, the survey’s findings indicated high rates of fully undeclared work but also of partially undeclared work. Factors contributing to the second case, he said, were a large supply of graduates under 30, who work in the shadow economy in jobs for which they are overqualified.