IMF Post-Mortem on Greece: Higher Taxes Did Not Help

June 12, 2013

The IMF recently released a report on the many things that went wrong with the IMF/EU bailout of Greece. One of those things was the condition that Greece raise taxes to close the deficit:

The adjustment mix seems revenue heavy given that the fiscal crisis was expenditure driven. As discussed earlier, the ballooning of the fiscal deficit in the 2000s was almost entirely due to increased expenditure. The large dose of revenue measures in the SBA-supported program can therefore be questioned, particularly since tax changes constituted almost half of the measures targeted for the first two years of the program. The case for indirect tax increases was that they were quick to take effect and faced less resistance than cuts in spending programs. Moreover, VAT rates were lower than the median level in Europe.

The IMF goes on to explain how higher VAT rates did not translate to higher revenues, due to administrative and compliance failures. Read the whole report here.

Follow William McBride on Twitter @EconoWill

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