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Tax evasion and austerity-plan failure

Pappadà, Fr., Zylberberg, Y., (2014), “Tax evasion and austerity-plan failure”, www.voxeu.org, 3 Φεβρουαρίου.

Greece’s austerity package included an unprecedented increase in the VAT rate, but the resulting increase in revenue was much lower than expected. This column links this disappointing result to the ‘transparency response’ of firms to higher tax rates. In countries like Greece with poor tax monitoring, firms face a tradeoff when deciding whether to declare their activity. Transparency is a necessary condition for accessing external finance, but it also means having to pay tax. Improving credit conditions for small and medium-size Greek firms might shift this tradeoff in favour of transparency.

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