Tax Evasion in Greece

Professionals underreport income

Visiting Assistant
Finance Professor
Adair Morse

Wide-scale tax evasion in Greece accounts for 28 billion euros in unreported taxable income--just among the self-employed, according to a new study co-authored by Adair Morse, a visiting assistant finance professor.

At a tax rate of 40 percent, that's a revenue loss responsible for nearly one-third of Greece's deficit in 2009 or almost 50 percent of its deficit in 2008.

Using bank data on household borrowing from 2003 to 2010, Morse finds that highly paid, highly educated professionals are at the forefront of tax evasion in Greece: doctors; engineers; private tutors; financial services agents; accountants; and lawyers.

Morse asserts that it may not be mere coincidence that the majority of Greek Parliament members' professions correlate with the largest tax evaders, even excluding lawyers. "Industry associations are strong," Morse suggests. "Parliament members face enormous loyalty pressure."

Morse hopes the study's findings will encourage EU and Greek policymakers to create incentives for more accurate income reporting. Already the research is having an impact on the rhetoric in Greece, encouraging the population to think about the culture of tax evasion and how tax evasion does not equally benefit all Greeks. The Greek government recently approved new regulations requiring all businesses to issue receipts for transactions so it may track business taxes due. If a business doesn't comply, the customer can reportedly walk away--without paying.

"Power of Ideas" - Table of Contents