Study: Greek shadow economy at roughly 25 pct of official GDP

The size of Greece’s unofficial cash economy – where transactions take place below the radar of the country’s tax authorities – is estimated to be about one quarter of the country’s official GDP and rising, according to University of Macedonia Prof. Vassilis Vlachos.

Presenting the results of the ongoing “Thales” survey during a press conference on Wednesday, Prof. Vlachos of the university’s International and European Studies Department said that the size of the country’s shadow economy was believed to have increased, despite indirect measurements indicating that this had fallen slightly to 23.5-24 pct in recent years. According to Vlachos, the lower measurements were partly the result of statistical errors and also the inherent inaccuracy of indirect measurements, citing as an example their failure to take the impact of migration flows into account.
The Thales study carried out by the country’s Shadow Economy Observatory uses a nationwide sample of 15,000 individuals.

Among the main factors contributing to an increase in the shadow economy, according to Vlachos, were a sense that the tax burden was not fairly distributed and that there was a poor return in term of public services, as well as inadequate tax inspections. He highlighted the very high percentage of those that don’t pay taxes and contributions as a ‘matter of principle’ (10-20 pct) and the high percentage of undeclared labour.

Based on the findings of the survey, participation in the shadow economy is at 60 pct for the general population and rises to 71.6 pct among the unemployed. Percentage participation in the shadow economy is at 64.6 pct for those working in the private sector, 61.3 pct for pensioners, 60.7 pct for the self-employed, 57.3 pct for business owners and 51.8 pct for public-sector staff.

Business owners are among those most likely to consider their shadow economy activity justified (52.4 pct), followed by the self-employed (50.4 pct), unemployed (46.7 pct), private-sector workers (42.5 pct), public-sector workers (32.4 pct) and pensioners (30.7 pct).

Giving their reasons for evading taxes, four in 10 Greeks consider their activity in the shadow economy justifiable due to the low return on a high tax burden (82.3 pct), its unfair distribution (77.1 pct) and the low quality and quantity of public services (72 pct). When deciding whether to evade taxes, 46.6 pct take their cue from what other people around them are doing, 42 pct consider that ‘morality’ is a deterrent for tax evasion and 73.9 pct consider that high fines are also a deterrent.

“Participation in the shadow economy is determined by the difference (on a monthly basis) between the (official) income and expenses of a household. A deficit increases the chances of participation in the shadow economy (either by reducing expenses by purchasing products without a receipt or by increasing revenues through undeclared income),” Vlachos noted. The high levels of participation in the shadow economy, despite the fact that most citizens consider tax inspections a deterrent, indicates that most consider the chances of an inspection to be very small,” he added.

On undeclared labour, Vlachos said the survey’s findings indicated high rates of fully undeclared work but also of partially undeclared work. Factors contributing to the second case, he said, were a large supply of graduates under 30, who work in the shadow economy in jobs for which they are overqualified.

According to Vlachos, the most effective response to the problem would be policies that seek to transfer activities in the shadow economy to the official economy, which would help Greece meet Europe 2020 targets. “Unfortunately, the state institutes policies aiming to control tax evasion that focus on stopping or abolishing activities in the shadow economy, not their transfer to the official economy,” he said.
More details concerning the survey’s findings will be unveiled at the International Conference on International Business 2017 (ICIB2017) organised by the University of Macedonia on May 18-21 in Thessaloniki’s Grand Hotel Palace. The conference will also feature three panel discussions organised by the Jean Monnet Centres of Excellence on «Research on Crucial Issues of European Integration».