How Tax Evasion Relates to Porsches

To look more closely at tax evasion in Greece, we can first ask where.

In the following map, the darker browns indicate the places where tax evasion is more prevalent. I am not sure whether it’s causation or correlation but the dark brown region in the red circle reputedly has the largest per capita Porsche Cayenne population among all OECD (Organization for Economic Cooperation and Development) countries.

From: Artavanis, Morse and Tsoutsoura

Where are we going? To a tax evasion primer of what, why, who and how much.

What Do We Mean By Tax Evasion?

First, we should start with the bigger picture. A part of the shadow economy detailed below, tax evasion is an offshoot of legal activities.

From: F. Schneider (2012)

Causes of Tax Evasion

Thinking specifically about Greece, we can ask why.

While the title of this table specifies the shadow economy, you can see that tax evasion relates to almost all that is listed:

From: F. Schneider (2012)

Who?

According to a University of Chicago Booth School paper, Greek lawyers, doctors, engineers, private tutors, financial services workers, and accountants were most likely to engage in tax evasion. The authors hypothesize that the main reason is the lack of a paper trail and a parliamentary solidarity with those professions.

However, 1.92 is the number to remember. Typical tax evaders’ income was 1.92 times what they reported.

In addition, you can see below that Greece has an unusually high percentage of self-employed workers. Indicating that wage earners were least able to evade taxes, the research suggests that the self-employed have more of an opportunity.

From: F. Schneider (2012)

Our Bottom Line: Fiscal Policy

Making official production and monetary statistics inaccurate and luring workers away from the official economy, the shadow economy distorts fiscal policy. In Greece, reflecting €28 billion in unreported income, tax evasion is estimated to have equaled 31 percent of their 2009 deficit.