Tax Evasion in Greece

April 23, 2010

The eyes of the international community have been fixed on Greece for some time now, and today they requested a $40 billion bailout from the EU and the IMF. Greece has a lot of financial problems to address, but a key one is its broken tax system. The Financial Times reported last week:

“Tax evasion is top of the list of reforms,” George Papandreou, prime minister, said in a speech to the Brookings Institution in Washington in March. “We will be prosecuting offenders, no matter how rich or powerful, to show that we mean business.”

Fewer than 5,000 Greeks declare annual incomes of more than €100,000 ($135,000, £88,000) – although more than 60,000 Greek households have investments in cash and securities exceeding €1m, according to estimates by a private Greek bank. […]

Corruption is widespread among tax officials, according to Greek companies.

“It’s much easier to agree on an under-the-table payment than challenge your tax assessment through the legal system,” said Markos, an Athens-based developer who declined to give his full name.

The Wall Street Journal recently highlighted one reason why tax evasion is so widespread in some European nations:

Trying to explain the rampant tax evasion, Prof. Schneider says countries like Spain, Portugal and Greece have had continuous democracies only since the 1970s, and people aren’t used to governments representing the public interest.

“In most of these countries, what matters is your family. … There is less of a sense of duty towards the state,” says Alberto Alesina, a professor of political economy at Harvard. “Evading taxes is something you can freely talk about-and be proud of-at a dinner party in these countries.”

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