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A Greek Tragedy: How Government Corruption has Fueled Tax Evasion

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A commonly used phrase in Greece is “cash only, no credit card payments”. Since 1981, corruption in Greece has become widespread, which has indirectly contributed to high tax evasion in the country. Tax evasion has become such a problem in Greece, where politicians and the general public have called it a ‘national sport’. Due to tax evasion, Greece loses about €30 billion a year in unreported income or 23.3% of its GDP, which is both from the illegal economy (drug trade and prostitution) and legal economy (self-employment).

So, why are Greek’s so reluctant to pay taxes? The simple answer is corruption. Apart from the illegal economy, Greek citizens assert that corruption, clientalism, crony capitalism, and a culture of bribery, as a justification for tax evasion. In addition, corruption scandals, involving government officials and foreign firms, have negatively impacted individual-level trust in government and public officials, and so this mistrust in government is another underlying cause for tax evasion. It can be argued that individual-level of trust towards politicians, government, and institutions significantly influences whether or not individuals will compile with the rule of rule or government policies (i.e. paying taxes). Furthermore, corruption has been proven to negatively impact individual-level trust in politicians, government, and institutions.

 “Why should we pay taxes when the government and public officials are corrupt?” – is a common statement in the country. This presents another question: why is Greece so corrupt? In 2015 and 2014, Greece’s Corruption Perception Index [CPI, hereafter] was 46 and 43, respectively (Transparency International, 2014 & 2015). Transparency International’s CPI score ranges from 0 (highly corrupt) to 100 (very clean).

Greece’s corruption increased significantly following the country’s membership into the European Community (later the European Union) in 1981. The Panellinio Sosialistiko Kinima (PASOK), the socialist party in Greece came into power in 1981, and the PASOK implemented a massive program of public spending as well as placing supporters in key positions of government. This was Greece’s slippery slide into widespread corruption and cronyism. It should be noted that prior to 1981 corruption was a problem in Greece, but not to the magnitude it became after. For example, with the Siemens corruption scandal (discussed in greater detail below), a few PASOK ministers had allegedly taken bribes from the German company.

Fakelaki is a Greek word for small envelope, and with respect to corruption, it refers to the bribe envelopes. For example, business owners will offer a Fakelaki to tax collectors and civil servants in return for not looking closely at their books or rubber stamping business documents, respectively.  In 2011, it was estimated that individuals paid between €100 and €20,000 to civil servants in the tax office in order to avoid audits of their financial records (Transparency International, 2012). On the other hand, Miza is another term used in Greece to describe corruption and bribery; however, this word refers to grand scale corruption, where large suitcases are used instead of the little envelopes because the bribe involves a large sum of money.

In the 1990s, Siemens, a German company, for example, had paid €15 million to government officials and their cronies in order to secure a €500 million OTE (former state-owned telecommunication firm) contract. This is just one example from approximately 150 scandals involving foreign firms’ bribing Greek government officials in order to gain an advantage in the private sector economy or secure government contracts. In 1986, following a corruption scandal, where an Italian construction company paid an estimated €350,000 in bribes to government officials in order to secure a construction contract for a hydroelectricity dam in Greece, the then-Prime Minister Andreas Papandreau, jokingly stated that “he had no problem if an official “makes a little gift to himself,” providing that the amounts not be outrageously high” (as cited by Zoakos, 2010, p. 19). In accordance, to Zoakos (2010), this was the green for politicians to engage in bribery, and so corruption was officially institutionalized in the Greek political system.

So, how can Greece deal with its tax evasion problem? The country needs  to take serious measures to control corruption at the state level and ensure that the culture of crony capitalism is removed from the country. This report proposes greater transparency in government contracts as well as greater input from civil society groups with respect to anti-corruption measures. Essentially, the government needs to take the issue of corruption more seriously and punish public officials that have accepted bribes. If these measures are followed, then the trust between government and citizens will be restored, and tax evasion may no longer be a problem.

References:

Transparency International. (3 April 2012). Greece: The cost of bribe. Surveys. Available at: http://www.transparency.org/news/feature/greece_the_cost_of_a_bribe

Zoakos, C.M. (2010). Eye-popping Greek corruption. The International Economy, 24(2): 18.

Patty Zakaria
Patty Zakaria is currently a consultant in international relations and research analysis. She completed a PhD in International Relations from Wayne State University, where she focused on international security, nuclear proliferation, and political corruption. She has worked as a researcher and lecturer in politics in the United States, Canada, and Croatia. Currently, she is a faculty member at University Canada West, where she teaches political science courses.

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