Greece’s other economy.

Underground economyThe Economist recently wrote about Greece’s informal economy. Here are some interesting points from the article:

* 24% of all economic activity went undeclared in 2013. After the recession the the economy shrank by 30% – government debt is 174% of GDP

* Greeks feel that their taxes are wasted – you only have to think back to the hosting of the Olympic Games in 2004. Greece’s ‘tax morale’ is the fourth lowest of 26 countries and its public sector is renowned for being the most corrupt in the EU.

* What has been the catalyst for the informal economy is the fact that Greece has a high level of self-employment – this makes it easier to evade income tax. Also government levies account for 43% of labour costs, compared with the rich-country average of 26%.

However it is important to remember that over 25% of Greeks are officially unemployed and the informal economy is a lifeline to many of them. Over two thirds of shadow earnings are spent instantly with companies that do pay tax. The best way to encourage Greeks to declare tax would be a sustained economic expansion. If there is growth and falling unemployment the temptation to go underground should dwindle.

Cartoon from ‘The New Yorker’ magazine.

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