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The culture of tax evasion in Greece

01 February 2016 / 21:02:47  GRReporter
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There are major differences in the scope of the informal economy, even between the developed countries that are studied. Among the countries of the Organisation for Economic Cooperation and Development, the champions in terms of the informal economy are Greece (26.86% of GDP), Italy (26.96%), Portugal (23.12%) and Spain (22.38%). It should be noted that these countries have played a major role in the recent debt crisis in the euro zone. It is clear that the countries with a significant informal economy have a number of negative features. It should be also emphasized that the significant informal economy does not necessarily mean economic problems, as there are exceptions. For example, the share of the informal economy in the Nordic countries is close to the average for the euro area (18%).

High borrowing costs

The main conclusion from the study is that the countries with a large informal economy have higher borrowing costs through government bonds and a low credit rating. Countries such as Switzerland, the US, Luxembourg, Austria and Japan have the lowest levels of informal economy in the world (between 8% and 11% of GDP) and the lowest borrowing costs (under 4%).

In countries such as Panama, Peru, Uruguay, Honduras and Sri Lanka, where more than half of the economy pays no taxes, credit costs are in the range of 7% and 10%.

Expensive loans from the markets

The study results support the argument that limiting the tax evasion will help countries such as Greece, which have serious problems borrowing from the international bond market. In statements on the issue Raphael Markelos says, "in view of the euro zone crisis, any new conclusion about how to form the cost of credit is valuable. Tax evasion limits the ability of a country to have access to cheap financing from international markets. This in turn has adverse effects on the entire spectrum of the economy, including social payments, investments, employment, rising prices, the availability of cheap loans to businesses and households. In modern economies, everything is closely linked to the credit rating of the country in which one lives." Especially interesting is the comment of Friedrich Schneider, who is a world-recognized authority in the field of study of the informal economy, "The crisis-stricken countries in recent years have high levels of informal economy. This drives us to conclude that tax evasion is part of the problem but of the solution too. We should not ignore the likelihood of eliminating tax evasion having negative side effects on the vulnerable groups of the population and the economy, especially in times of crisis."

* Raphael Markelos is a Professor of Finance and research director at Norwich Business School, University of East Anglia.

Tags: Tax evasionInformal economyGreeceConsequences
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