Greek’s shadow economy and institutions

Economic institutions matter! From the credibility of central banks to the roles played by legal systems in upholding property rights and the need for a functioning system of government in collecting tax revenues and making sure that each dollar or euro or pound of state spending is money fairly well spent. I enjoyed reading Tyler Cowen’s piece in the New York Times today - among many others he senses that an eventual default and departure from the Euro is probably the best approach that greek can take.

The budget crisis facing Greece boils down to excessively high levels of government spending and a failure to collect sufficient tax income. This comes as no surprise when we discover the size of Greece’s shadow economy.

“Greece has a malfunctioning fiscal system in which the shadow economy is estimated to be roughly 20 to 30 percent of the reported economy and tax evasion may run at $30 billion a year. Simply collecting taxes that are legally due would help bring Greece’s books into balance, yet even this simple remedy does not appear imminent.”

More here