Tuesday, May 24, 2011

A New View on the Greek Crisis: It's a Revenue Problem

Just like in the United States, Greece has a revenue problem, according to Perry G. Mehrling over at New Economic Thinking:
It turns out that the size of the Greek debt, relative to GDP, is not a new thing at all; it dates back to the 1980s when Greece, catching up to its European neighbors, expanded its welfare state. Ever since, Greece has been subject to one stabilization plan after another, but never with any more than temporary success. Given that history it would seem wise, before putting a lot of eggs into yet another stabilization plan basket, to ask why previous plans failed, and to consider alternatives.

The problem is also apparently not the size of the Greek welfare state—which is below the Eurozone average—although efficiency of service delivery (and corruption) is a definite problem; Greeks are not getting good value for money. Rather, the heart of the problem is in the antiquated revenue system that supports that state, which results in a budget shortfall consistently about 10% of GDP. Stathakis claims—perhaps overstating the case somewhat for effect?—that the top 20% of the income distribution in Greece pay no taxes at all. No wonder there is a fiscal crisis.
America feels your pain, Greece. We've got a top tier of earners who don't pay their fair share either.

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