January 30, 2011
The NYT ran a piece on the difficulty of establishing a business in Greece. This discussion was set against the backdrop of Greece’s competitiveness problems and its budget problems.
It would have been worth mentioning in this context the enormous problem of tax evasion in Greece. The OECD has estimated that close to one third of Greece’s economy is underground and therefore not paying taxes. This level of tax evasion both reduces revenue to the government and also encourages cynicism towards the law more generally. If everyone knows that the wealthy do not pay the taxes they owe then it is difficult to argue that truckers, pharmacists or other protected groups should give up the state supports that limit competition and allow them to be better off than the population as a whole.
In this context one obvious reform that has not been included in Greece’s austerity packages is a tax amnesty. This could take the form of allowing people to pay several years of back taxes with little or no penalty over a 6 month or 1 year time horizon.
This allows the wealthy to vote with their feet as to whether they believe the country is serious about enforcing its tax code. If they believe that the law will actually be enforced in the future, then there will be a flood of revenue coming into the government. On the other hand, if they think that it will just be more business as usual, then little money will be collected. For this reason, a tax amnesty would have provided a great signal to both Greek society and the EU.
The article also includes the seemingly contradictory assertion that the laws sharply limit the number of lawyers and that Greece “is among the world’s leaders in lawyers per capita.” Of course it is possible that the extensive web of regulations in Greece leads to a larger than normal demand for lawyers.
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