One of the reasons Greece has had such a difficult time raising revenue is because tax evasion is sort of their national pastime.

In Greece the “tax gap” (the difference between what should be paid by taxpayers and what actually gets paid) is about 1/3 of total tax revenue. About 28% of all business in Greece is conducted outside of the tax system (“under the table”). And the cost of tracking down so many tax cheats is astronomical. All other factors being equal, Greece spends 4 times what the US spends on tax collection efforts.

One author believes that this culture of tax evasion is the result of poor enforcement practices and low “tax morale.” See The New Yorker article “Dodger Mania” by James Surowiecki.

Enforcement

• tax collectors in Greece frequently accept bribes
• tax laws have too many loopholes and are not applied fairly
• even when tax cheats are caught, justice comes very slowly in backlogged tax courts

Tax Morale

• the people of Greece doubt their government will spend the tax revenues judiciously
• since the rich and prominent members of society avoid paying taxes, the burden falls on those who can afford it least
• citizens in any country tend to pay if they see others paying, but if they see others cheating then the tendency is to cheat (paying taxes seems to be a social animal)

It’s easy to see how these problems are related. Low tax morale leads to difficulties with enforcement, and enforcement problems lead to poor tax morale. The morale issues will probably work themselves out over time as long as Greece really cracks down on enforcement. Maybe they should start putting away famous tax evaders like the IRS has done here; that would send a strong message.