Tax and Trust: The Fiscal Crisis in Greece

Abstract:

This paper aims to highlight a number of shortcomings in the design and enforcement of the tax system in Greece, which have played a key role in the exacerbation of fiscal deficits that led to the current sovereign debt crisis. More precisely, we argue that these shortcomings resulting in low tax revenue are related to the structure of the Greek economy and to the failures of formal institutions (such as the poor functioning of the tax administration and lax tax enforcement). Such failures are rooted in and at the same time reinforce failures of informal institutions, namely low levels of trust in institutions and perceived fairness of the tax system.