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Friday, 19 February 2010

TAX COMPLIANCE FAIL - GREEK DEBT BLOGGING WIN

[Under construction]

I've recently come across this wonderful analysis of what Greece's problems actually mean for the EU and the world at large.

The amazing WIN moment in this blog is the following quote, which of course I'm not supposed to cite by I will because it's too good:

"Don't quote me on this apocryphal statistic, but I'm reliably informed that exactly six Greeks declared more than a million EUR in income last time anybody counted. And exactly 85 declared more than half a million. So we're probably a bit better than top 40." 
So there you have it. One would think of course that if we can just net the tax evaders, that would be the end of it. In fact, our government is dead sold on this.

That's unless of course someone asks the obvious question. How much is this costing us? According to one fairly recent study, based on our own tax data no less, Greek taxpayers under-report income by ca. 10%, but since tax evasion is more concentrated among very high-income individuals, this means that income tax receipts are 26% lower than they should be. How much is that?  Unfortunately, since our forecast personal income tax take is only about EUR11.4bn it would appear to be a paltry EUR4bn. It's something of course, but it's only about 18% of our forecast deficit for 2010.

Incidentally, this study suggests that our middle classes are actually the least likely to dodge tax in this way, and hence (I add) would be the most justified in their opposition to austerity measures:

"[T]he distribution of under-reporting by income suggests a U-shape: the rate of income under-reporting is 10-11% in the bottom 3 income deciles, falls to 5-6% in deciles 4 and 5, rises slightly to 7-8% in deciles 6 to 9, and then sharply to almost 15% in the top decile (24% in the top centile)."

Note also that this is only tax-evasion we're talking about.

Greeks will tell you, however, that the "little windows" [Greek for loopholes] in the law allow them a fantastic array of tax avoidance schemes as well. Tax avoidance is the legal cousin of tax evasion, but it's harder to tackle because it means changing the law rather than getting the bad guys.

When did we get so devious? This paper has a very interesting take on the question. A good look at the table detailing the evolution of the shadow economy in Greece [which I'm trying to reproduce but Blogger won't let me] shows that the paradigm shift came in 1981-1984. Anyone care to guess what happened at that time?

Here's an idea for dealing with tax evasion that I really think could catch on: this study has looked into what aspects of national culture (according to the classification milked to death by Geert Hofstede) correlate with high incidence of tax evasion.

Apparently, high levels of tax non-compliance correlate with low levels of cultural masculinity. Although this is a complicated concept, we can tell a noble lie and tell our people that it responds to the usual notion of masculinity. The result? TAX EVADERS ARE MORE LIKELY TO BE GAY.

Put that on the airwaves and watch the tax revenues roll in!

Actually, these guys have looked a little deeper into the data and they find that the masculinity thing doesn't stack up. Actually, tax evasion rises with low individualism (we got that), high uncertainty avoidance (we got that), low belief in the rule of law (we got that), low trust in government (we got that), low religiosity (we don't have that) and low economic development (we got that in places).

1 comment:

  1. And exactly 85 declared more than half a million. So we're probably a bit better than top 40." Uni-source

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