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Home Publications Blogs Beat the Press The Post Doesn't Like the Greek Welfare State

The Post Doesn't Like the Greek Welfare State

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Thursday, 29 April 2010 04:47

That should not be a surprise given the paper's hostility to Social Security and its outrage over the fact that unionized auto workers can earn $56,000 a year, but the Post's editorial calling for reform does miss an important part of Greece's story. While aspects of Greece's welfare state almost certainly do need to be changed (a retirement age of 60 is hard to support in a modern economy), it is also important to note that there is massive tax evasion in Greece, especially by the wealthy.

The OECD estimated the size of Greece's underground economy at more than 30 percent of its official economy. Even if this is an overstatement, the existance of a large uncounted sector inidcates that Greece's debt burden is considerably smaller relative to the size of its economy than the official data imply. It also points to the fact that many wealthy people are likely paying the taxes that they legally owe. Greece's citizens are likely to be less amenable to giving up benefits like a relatively generous Social Security system in a context where the wealthy are avoiding their tax obligations. This is an important part of the story that needs to be mentioned in  any discussion of Greece's fiscal problems.

Comments (11)Add Comment
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written by izzatzo, April 29, 2010 9:09
OK Bubba, we got Chickens for Check-Ups all set up as a barter operation to avoid taxes in Nevada. What say we expand it to Dialing for Guns and Gold in Vegas then launder the take back into dollars under a front company named Ron and Rand Paul, Ltd.
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written by Queen of Sheba, April 29, 2010 10:31
Poor Greece. With the help of Goldman Sachs they misrepresented their balance sheets in order to join the EU, and now their shenanigans have been uncovered. This has sufficiently outraged the boys in the European Central Bank that they are resisting bailing out the failing country. Greece has spent the last ten years hiring government workers to relieve the pressure on the private sector, and now the population is panicking and conducting a run on the country's banks. It's a bleak day in Europe now, as other EU countries' economies are being dragged down at the same time, even if not for the same reasons.
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written by kyriakos, April 29, 2010 12:32
Dean gets it right, again. According to polls, greeks feel that the austerity measures are necessary but unfair because the do not target the usual suspects of tax evasion (wealthy self employed professionals like doctors, lawyers and construction engineers and large companies who consinstently fail to meet their obligations and later negotiate deals with the government to delay or reduce their debt payments) but focus on regressive consumption taxes and reductions in public sector wages.

Queen of Sheeba
In fact Trichet (head of the ECB), who is willing to accept greek junk (according to S&P) bonds as collateral for loans to greek commercial banks, recently visited Berlin in a near desperate attempt to convince Merkel on the necessity of a bail-out. You're dead wrong, at least in that respect.
typo?
written by Martin Langeland / Dum Luks, April 29, 2010 1:11
Dean:
Might
"It also points to the fact that many wealthy people are likely paying the taxes that they legally owe."
read better as: "It also points to the fact that many wealthy people are likely not paying the taxes that they legally owe."
--ml
It isn't just the rich
written by floccina, April 29, 2010 2:10
It isn't just the rich. Southern Italians and Greeks dodge taxes whenever they can. They assumes everyone else is. It is part of the culture. Time may cure it but in the next 10 years it won't happen. It would take gestapo tactics which you could not get Southern Italians and Greeks to be gestapo. You would need to bring in Germans to collect the taxes.
Some hours of work more hours of leisure
written by Scott ffolliott, April 30, 2010 1:13
Some hours of work more hours of leisure
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written by kyriakos, April 30, 2010 4:38
@floccina

Keep in mind that technically it's not possible for everyone to dodge taxes. When you're on a salary, tax is deducted off your monthly pay so you're paying it in advance. It's not fair to say that everyone dodges their taxes. As for the "culture" thing, think of it in game theory terms: the plumber tells you "I'll charge you x euros if I give you a receipt (which means he'll have to pay tax for the transaction) and x minus 20% if I don't". What will you do? The morally right thing to do is to ask for the receipt but, unless there's a way to make other people do the same the rational thing to do is to get the discount. The greek government is trying to stop this practice by connecting low income tax deductions with receipts, which means that people will have to ask for a receipt if they want to get tax deductions at the end of the year. Up to now it's working reasonably well.
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written by purple, April 30, 2010 6:06
Why is a retirement age of 60 'hard to support in modern economy' ? The point of technology is to improve quality of life. If capitalism can't support a declining retirement age even with its pace technological innovation, then there are some flaws in the model.
@Dean
written by James, April 30, 2010 8:44
Why is a retirement age of 60 hard to support in a modern economy? The retirement age in the US is 65 years old for men, why is a 5-year difference considered such a big deal???
Papandreou
written by osfp, April 30, 2010 3:02
the center-left government must take measures that the public perceives as legitimate. Going after high-earning tax evaders and foreign bank accounts is certainly part of that. Making the public sector more transparent and efficient is another, and not one that can be accomplished by cutting salaries and pensions and so on. Providing services without excessive red-tape, without bribes and without needing someone on the "inside" would go a long way to reducing the resentment towards the public sector workers (although this resentment is probably easier to find in the US and European press than in Greece).

This all becomes more difficult when the IMF and Eurogroup are requiring very ambitious deficit targets that are almost certain to fail (unless higher unemployment and a sharp recession are the success criteria.
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written by James, May 01, 2010 5:51
Dean,

I generally agree with you but "a retirement age of 60 is hard to support..." If someone who has saved enough to retire at 60 or 62, is that supportable or reasonable?

If not, how old do you plan to work till? 72 and have a Yellow Smiley on your chest to be a greeter?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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