Greeks Are Good at Dodging Taxes, But the Greek Government Is Better at Spending


It turns out there's something Greece is actually good at.

Riffing off a new research paper, Justin Lahart at the Wall Street Journal has some interesting data on the truly vast, indeed, awe-inspiring degree of tax evasion that Greeks have accomplished in recent years. Even more impressive, if the Greek government had scooped up every euro it coveted, it would still be broke.

Writes Lahart:

Armed with data from one of Greece's ten largest banks, economists Nikolaos Artavanis, Adair Morse and Margarita Tsoutsoura recently set themselves to the task. The banks, with tens of thousands of customers across the country, provided loan and credit-card application and performance data. That not only gave the economists access to self-reported incomes, but also allowed them to infer the banks' estimates of true incomes — which are likely closer to the mark.

The economists' conservatively estimate that in 2009 some €28 billion in income went unreported. Taxed at 40%, that equates to €11.2 billion — nearly a third of Greece's budget deficit.

Why hasn't Greece done more to stop tax evasion? The economists were also able to identify the top tax-evading occupations — doctors and engineers ranked highest — and found they were heavily represented in Parliament.

Not mentioned in the article, but buried in the paper itself is the datum that "We fi?nd that on average the true income of self-employed is 1.92 times their reported income." So Greeks with the means to do so are underreporting their income by almost half.

Predictably, Brad Plumer, writing in Ezra Klein's little romper room for the criminally insane at the Washington Post, blames much of the world's economic woes on these tax-averse nibblers of grilled octopus.

The euro crisis first started roaring in late 2009, when auditors inside the newly elected Greek government discovered that the country had a much—much—bigger deficit than anyone realized. …

But why did Greece have such a massive budget deficit in the first place? One factor (among many) was rampant tax evasion, which had starved the Greek government of funds.

But remember Lahart's point above that uncollected Greek taxes represent "nearly a third of Greece's budget deficit." That means, if the Greek government had collected every bit of that evasive lucre, it still would have overspent by roughly €20 billion. Even if we accept Plumer's seeming assumption that government spending levels are fixed by natural law, and it's up to us mere mortals to keep up, Athens would still be circling the drain if its subjects were the most compliant feeders-of-the-beast to ever live.

Under the circumstances, stashing as much cash as possible out of sight of the ruling lunatics sounds like the equivalent of hiding the bottle from a falling-down drunk. And if the earners of that money benefited in the process of trying to dry out the state, so much the better.

You can read the full paper here (PDF).