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The connection between tax fraud and political elite has been mathematically proven

19 September 2012 / 14:09:31  GRReporter
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Research by the Economic Chamber of Greece shows that those professions that are best represented in parliament – physicians, engineers, teachers, accountants, lawyers conceal income the most. Every year, the tax fraud of these professions results in 11.2 billion euro losses to the state - an amount fully comparable to the 11.8 billion euro of budget cuts that the government should make in order for the creditors to approve the payment of the next tranche of financial aid.
    The research was carried out by Margarita Tsoutsoura from the University of Chicago and Nikolaos Artavanis from Virginia Tech University. They used a new method to evaluate the real income of households developed for countries with a highly developed informal economy like Greece. In such societies, households have incomes recorded on paper, but they have incomes paid in cash too. To do a good job and be competitive, banks lend to customers on the base of the size not of their declared income but of the size of their real income.
    The scientists take data from banks for the payments made by customers to repay their loans and compare them with their declared taxable incomes. They also assume that it would be difficult for people working for a salary to hide it and turn to liberal professions - physicians, lawyers, journalists, artists, stockbrokers, teachers. The research shows that all the representatives of liberal professions spend 82% of their income on average to cover their obligations to banks. For some professions, such as physicians and engineers, this percentage is 155, and for lawyers – it is 100%! Worldwide, it is assumed that a person cannot pay more than 30% of his or her income on loans in order to live a normal life.
    The conclusion is obvious - these people have more money than officially declared. According to the amounts paid to banks in 2009, the income of liberal professions was 28 billion euro. When taxed with the income tax rate of 40% it results in 11.2 billion euro loss to the state in unpaid taxes. This amount is equal to 31% of the budget deficit for that year.

In particular, the list of tax frauds look like this:
    Physicians - average amount of tax evasion - 29,343 euro, the real incomes are 2.45 times higher than the declared ones
    Engineers - average amount of tax evasion - 28.625 euro, the real incomes are 2.40 times higher than the declared ones
    Teachers - average amount of tax evasion 24,742 euro, the real incomes are 2.55 times higher than the declared ones
    Accountants - average amount of tax evasion 24,573 euro, their real incomes are 2.22 per cent higher than the declared ones
    Lawyers - average amount of tax evasion 24,032 euro, their real incomes are 2.24 times higher than the declared ones
    Journalists, artists, hotel and restaurant keepers, builders, farmers are also on the list. According to the researchers, the more an economic activity is associated with less invoicing and documents the easier it is for the professions involved in it to conceal their incomes.
    Scientists do not stop there. They compare the research results with the numerical strength of the Greek parliament and conclude that the professions that conceal the highest amount of incomes are the very ones that have the highest numbers of representatives in the Greek parliament. I.e. they mathematically explain why the Greek elite have no political will to deal with tax crimes. The authors recall that lawmakers repeatedly blocked bills that would introduce a patent tax on liberal professions and other measures that would limit the phenomenon.
    Briefly, there are two reasons for tax evasion in Greece – the first is that a large part of the economy in the country is informal and there is no documentation to verify that an economic activity has been performed, and the second is that the political class has no interest in eliminating tax fraud because the political class itself comes from the professions that evade taxes the most.

Tags: Tax fraudConcealment of incomeGreek parliamentLiberal professionsInformal economy
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