Greece fact of the day

Already, the government’s proposals for deep spending cuts have stoked strong resentments in a country where one out of three people is employed in the civil service that, until now, has guaranteed jobs for life.

Here is more.

Comments

And still, for some strange reason, people trust governments much more than they trust for profit corporations.

[Prime Minister George Papandreou] said members of Parliament would also do away with their bonuses.

Bonuses???

Bill,

Even if you tax 25% at 100%, you don't get 33%.

To paraphrase Obama: "The government is 1/3 us."

Andrew, I don't understand what you're saying, even if you say it twice.

The point is, not that taxes or tax evasion is the sole source of the problem, but that you can't ignore it if Greece is to get itself on stable footing. Nor can you ask Germany or the IMF to ignore it either.

Nor is it good for Greece (as if I really care, other than my world bond portfolio), or its democracy. If you have 25% of the economy not covered, those individuals--doctors, small businesses, and other described in the NYT article--have no incentive to vote or to reign in unnecessary spending.

Taxation can be a self-correcting mechanism. Not just IMF or EU dictates.

Of course, they could continue on their way. It's their choice. But, it may be your consequence.

Brilliant, not only will the EU come and micro-manage their government which has an identity problem themselves (Rompuy or Barroso or Germany, who's in charge?), the IMF will also be looking over their shoulders...too many cooks in the kitchen...too many chiefs, not enough Indians...the buck doesn't stop here..who shot JR...you can't always get what you want...beware of Greeks bearing gifts...

How many clichés can you use in this situation? I fail to see how this will go good in any way.

The productive, law-abiding Greeks are going to have to make a decision soon- be bled dry by the parasitic class, or throw them off. I advocate that they stop paying their taxes, too. I think it may be the only way to save themselves.

E.Baradarian, From what I've read, tax evasion is endemic across all income categories and all rates in Greece. It is not confined to one income category. The presence of widespread tax evasion leads to higher rates, and the selection of tax systems that are the easiest to monitor, and perhaps the most regressive, or the most arbitrary (Greece has a history of doing retroactive taxation, so business cannot plan because they may be assessed for income in prior years!). There solution is to lower rates and cut back evasion, but the only way you can start is to cut evasion first.

If I were Germany or any other creditor, I wouldn't lend to a country with a tax system that has the collection capacity of a seive.

E.Barandarian, I looked at the IMF report you recommended, and the IMF staff recommended that Greece not cut personal income taxes:

"30. The authorities differed with [IMF] staff’s proposal to postpone planned tax cuts.
Given low revenues, staff recommended that corporate and personal income tax rate cuts of
1 percent a year through 2014 be suspended until the deficit is confirmed to be below
3 percent of GDP. The authorities argued that this would be politically difficult, as these are
commitments already passed in parliament. They also thought that revenue losses may be
small due to the relatively small base of these taxes and Laffer-curve effects."

Bill,
1. I recommended to read the report. I didn't say I was endorsing any IMF's policy recommendation, and certainly I oppose the one you refer to in your comment. I don't know of any other report that I could recommend and the IMF is the only organization that reviews the data regularly. Please note that at the end of the report the IMF warns about serious problems with fiscal data.
2. Your argument amounts to support increases in the rates of the income tax and the VAT. My argument is that the rates must be reduced or at least they should not be increased. You think that the increases will increase revenue whereas I think they will reduce it. You don't say it but apparently you believe that the negative effect of increases in tax rates on economic activity will be small with no significant expansion of the underground economy; I believe they will increase the underground economy with a negative short-run effect on the overall economy.
3. Indeed we will never know the effect of increases in tax rates because the fiscal adjustment will include some cuts in expenditures and other measures.
4. I don't have time to compare OECD and IMF data on tax rates and revenues but apparently there are important differences.

Bill, sorry. I misunderstood your argument. I'm sure, however, that in the past few years the Greek government has promised to improve compliance every time that tax rates have been increased. From the experience of Argentina and other countries with tax evasion and efforts to improve compliance, I must say that it will take a long time to succeed (Obama may control health care costs before the Greek government improves tax compliance). In the short run, efforts to improve compliance will reduce the underground economy without reallocating resources to the formal economy. Most firms in the underground economy are not profitable at the current tax rates (I know about this a lot from my relatives' firms in Argentina and Chile).

Tyler, As VA Classical Liberal noted, this quote is not in the linked NYTimes article. The OECD publication "Government at a Glance 2009, Country Note: GREECE" does provide information for 2005, the latest available year:

"In 2005, government employment in Greece amounted to 14% of the total labour force, very close to the OECD average."

http://www.oecd.org/dataoecd/5/52/44125050.pdf

The original source for this statistic is "OECD Comparison of Employment in the Public Domain Survey and Labour Force Survey"

The one-in-three estimate for civil service jobs appears to be an exaggeration.

I searched again, and cannot find it.

Comments for this post are closed