Greek tax evasion is institutionalized

A recent study¹ at the University of Chicago has concluded that Greece loses at least 1/3 of its deficit through tax evasion. (Other estimates puts this at more than 50%.)  They reached this conclusion by comparing bank lending to reported income, and they found that debt service on loans to many professions and industries exceeds 100% of reported income but that these loans have low default rates. Clearly, banks used actual rather than reported income in their lending standards.

My comment:  Since enforcement of taxes is very unevenly applied, Greeks feel justified in not paying them.

Here is a quote from the study:

“Ranked by euros tax-evaded, the largest offending industries are medicine, engineering,

education, accounting, financial services, and law. This industry distribution of tax evaders in Greece provides support for two incentive stories. First, paper trail matters. Industries with lower intensity of paper trail have more tax evasion. Second, politicians matter. The occupations of parliamentarians line up very well with the tax evading occupations, and these same parliamentarians failed to pass mild reform targeting their own industries.”

1“TAX EVASION ACROSS INDUSTRIES: SOFT CREDIT EVIDENCE FROM GREECE” Chicago Booth Paper 12-25. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2109500