Greece is known for having a shadow economy, or an underground economy where people buy undeclared or illegal products and services. In recent years the shadow economy in Greece accounts for around 24-25 percent of the economy, one of the highest on the EU bloc.
In fact, Greece comes in 8th place from the top in Europe, with Bulgaria taking first place as they have a shadow economy of 31 percent, followed by Croatia, Romania, Lithuania and Estonia at 28 percent, Turkey at 27 percent and Latvia at 26 percent.
The estimated annual amount that a Greek household spends on undeclared goods is 750 per year, while freelancers and self-employed individuals are thought to spend even more. In all, Greece’s shadow economy accounts for some 40 billion euros annually, meaning that state coffers are being shorted some 16 billion euros that they could be collecting in taxes and social security contributions.
Aristides Bitzenis, an Assistant professor at Macedonia University supervised an analytical report looking into the causes of the shadow economy in Greece which was conducted as part of the Thales interdisciplinary research program and was co-financed by the European Union and the National Strategic Reference Framework (NSRF or ESPA).
Here are the details for what the report found as the key causes in creating circumstances for the shadow economy to flourish in Greece:
1. The huge spike in direct and indirect taxes and in the ratio by which social security contributions are calculated: The value-added tax of 24 percent is among the three highest in Europe. At 45,000 euros, Greece has the lowest income level carrying the highest rate of tax (up to 55 percent when including the Solidarity Tax), while the percentage paid in employers’ and workers’ social security payments is among the three highest in Europe.
2. Unemployment: Numerous studies show a direct correlation between joblessness and the growth of the shadow economy, and Greece tops Europe’s unemployment charts right now. According to data from the Eurobarometer, unemployed Greeks spend 789 euros on average on undeclared goods and services, compared with 439 euros among salaried workers.
3. The percentage of the work force which is made up of self-employed professionals: Companies employing up to nine people represent 96 percent of the total number of registered businesses in Greece and 55 percent of all employees, while in Europe this average comes to below 30 percent. Self-employed professionals make up 32 percent of the work force, compared to the European Union average of 14 percent. Self-employed professionals, meanwhile, are estimated to spend 950 euros per year in the shadow economy, far above the national average of 750 euros.
4. Red tape.
5. Tax ethics: described by Vasileios Vlachos of Macedonia University’s Observatory of the Shadow Economy as the inclination of citizens to make good on their tax obligations through a combination of different factors, such as personal gains arising from tax and contribution evasion and peer pressure.
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