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Distributional Implications of Tax Evasion in Greece

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  • Manos Matsaganis
  • Maria Flevotomou
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    Abstract

    The shadow economy and tax evasion are both widespread in Greece. This has adverse effects in terms of horizontal and vertical equity, as well as in terms of efficiency. We take advantage of access to a large sample of income tax returns in 2004/05, and compare tax reported incomes with those observed in the household budget survey of that year. We re-weight our two datasets to make them fully comparable, and carefully select the reference population. We then calculate ratios of income under-reporting by region and income source. The synthetic distribution of reported incomes is then fed into a taxbenefit model to provide preliminary estimates of the size and distribution of income tax evasion in Greece. Income under-reporting is estimated at 10%, resulting in a 26% shortfall in tax receipts. The paper finds that the effects of tax evasion are higher income inequality and poverty, as well as lower progressivity of the income tax system.

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    Bibliographic Info

    Paper provided by Hellenic Observatory, LSE in its series GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe with number 31.

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    Date of creation: Jan 2010
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    Handle: RePEc:hel:greese:31

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    Keywords: tax evasion; inequality; microsimulation.;

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