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 inĀ  any discussion of Greece's fiscal problems.