An interview for the Greek Reporter, in English, perhaps cheering the like-minded and sure to infuriate some conventional wisdom.
I agree with the "anti-austerians" on one point: Raising taxes was a bad idea. In my emphasis what counts are marginal tax rates on growth-producing activities, rather than Keynesian pump-priming, however, which is an important distinction.
The article says "A recently released study by the Economics Department at the National Kapodistrian University of Athens revealed that Greece has the third highest taxation rate among 21 European countries." If anyone has a link, especially if it's in English, send it in the comments.
Monday, February 22, 2016
24 comments:
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Not sure how current this is but:
ReplyDeletehttps://en.wikipedia.org/wiki/Tax_rates_of_Europe
Greece -
29% Corporate Tax - 7th highest behind Belgium, Germany, France and others
42% Maximum Income Tax - 15th highest
23% VAT Tax (13% for restaurants and groceries) - 7th highest behind Sweden, Norway, Hugary, Finland, and others
Sorry, but tax *rates* alone don't tell one very much about how much tax is actually paid. Even high rates at the margin don't necessarily translate into high effective tax rates at the margin due to legal avoidance and illegal evasion.
ReplyDeleteGreece actually collects less tax as a percentage of GDP than most countries in the EU. But, guess what, the government spends more as a percentage of GDP than just about anyone else.
http://www.heritage.org/index/explore?view=by-variables
Greece needs to cut its public spending, privatize a bunch of government owned "businesses", reduce cronyism and start collecting the taxes that are owed per existing legislation. One can then have a discussion as to whether those marginal rates are appropriate.
Per Ameco for 2015
DeleteTotal expenditure excluding interest of general government adjusted for the cyclical component: Greece=45%, Euro Area=45.4%
Cyclically adjusted total revenue of general government: Greece=45.5%, Euro Area=46.6%
Current government figures for Greece are a product of the output gap, not of lack of measures. Actually Greece has implemented discretionary measures worth 30% of GDP since 2010.
Cyclically adjusted and excluding interest??
DeleteCome on, Kostas, this is the kind of wishful accounting that got Greece into trouble in the first place.
Money is fungible. If you are paying too much in interest, other stuff has to be cut or taxes need to go up, or both. Is default the only option in your world?
I m really sorry but austerity is defined in terms of discretionary measures and if that metric is not available in terms of change in the structural (cyclically-adjusted) balance. That's how all economists define austerity and how fiscal multipliers are calculated.
DeleteOtherwise you might have a multiplier of 2 (such as the wage bill in the case of Greece) and maintain that.. expenditure is too high because austerity measures are hurting GDP too much to lower expenditure as a percentage of GDP significantly.
Oh and interest expenditure is 4% GDP in Greece with an implicit interest rate of 2%. It increased during the first Greek bailout, a sign of a poorly designed program.
"collects less tax as a percentage of GDP than most countries in the EU"
ReplyDeletemost countries in the EU do not report tax collection, but how much money the government gets from income tax, property tax, fees, dividends, excise taxes etc.
"Collects" is used here in the vernacular sense as synonymous with "raised", both voluntarily remitted, through audits, etc. The link to the Heritage study should have made that clear.
DeleteAnd, regarding Greece and "collection", the following IMF report (starting at page 18) should be of interest:
Deletehttps://www.imf.org/external/pubs/ft/scr/2013/cr13155.pdf
Serious question: when did “raising taxes” become an austerity measure and thus a reason to oppose austerity? In everyday usage, austerity usually means cutting back spending, not increasing income.
ReplyDeleteWhen I tell people I have to switch to a more austere budget, no one ever thinks I'm saying that I'm forcing my employer to give me a raise.
Serious question: when did “raising taxes” become an austerity measure and thus a reason to oppose austerity?
DeleteSemi-serious answer: That happened when someone asked an economist what austerity means.
http://www.economist.com/blogs/buttonwood/2015/05/fiscal-policy
"What economists generally mean by austerity is a reduction in the structural deficit of the government, that is, ignoring the effects of the economic cycle."
Thanks. That is a very informative article. Although then I have to wonder why economists chose austerity as the word for what it describes! It sounds like a government could spend more next year than it spent this year, but if GDP also rose, they would still be said to be instituting a policy of austerity?
DeleteEconomists didn't choose the word, politicians did. And I agree it's an awful word.
Delete"austerity" is an attempt to reduce deficits by decreasing spending or increasing taxes - either of which reduces private sector income, GDP, etc which , in turns, creates the worst of all worlds - low or no growth and deficits which do not decline (because of lower revenues and higher social spending). As noted by others here, lower taxes would improve incentives and be a boost to growth. In addition, it should not be overlooked that lower taxes put more into the hands of the private sector, increasing spending, GDP, etc.- which will also lower deficits. That is, lower taxes means higher growth, lower deficits.
DeleteCharles,
Delete"...austerity is an attempt to reduce deficits by decreasing spending or increasing taxes - either of which reduces private sector income, GDP..."
Agreed.
"As noted by others here, lower taxes would improve incentives and be a boost to growth."
Agreed.
And so lower taxes, budget deficits, and a reduction in federal debt are a triple boon to growth. Federal debt reduction goes toward trade balance and unearned income issues.
This reminds me: In Tirana,Albania business taxes increased by 1000% in the span of 1 month, without prior notice and 0 media coverage.
ReplyDelete"...“I think defaulting on the original lenders, who made a lot of money in the good times, would have been a good policy for Greece and for Europe. In a currency union, sovereign debt must be allowed to default, just like corporate debt...."
ReplyDeleteThat's not correct (viz. prof. Skeel's legal analysis of default) because sovereign bankruptcy is closer to personal, NOT corporate, default insofar as the original debtor remains in charge. Cases such as East Germany's where a country literally disappeared are extremely rare. Further, non-tax burdens on potential investors are prohibitive, and that appears nowhere in the statistics though is evident in analyses of actual attempts to invest in Greece especially in its current "privatization" offerings. Less than 1% of items on the officieal list have been sold
http://www.sven-giegold.de/wp-content/uploads/2015/08/Privatisation-Programme.pdf
PS on same comment by prof Cochrane: Greece DID default in 2011 when its bonds were written off for about 100 eu billion. Largest default of all times, bigger than Argentina's in 2001 (about $80 bn) or Russia's in the '90s($70 bn).
ReplyDeleteI have e-mailed a request to the departmental library of the University of Athens Department of Economics, but have received no answer yet. Apparently some tables of the study have appeared in a newspaper and they are in image, not text, format. I will let all know, if any other info surfaces.
ReplyDeleteGeorge J. Georganas
If one tries to explain the Greek crisis through the lens of "austerity", whatever that means, they are not going to get very far. Here is a serious attempt.
ReplyDeletehttp://www.aueb.gr/conferences/Crete2014/papers/Galenianos.pdf
High marginal tax rates are part of the problem, but so is the fact that the tax code changes every year, that regulation is excessive, that corruption is still prevalent, that the political and macroeconomic environments remain unstable, that social support networks (it is common for people in their 20s and even 30s to live with their parents and "share" their pensions) increase the reservation price of job-seekers in a labor market with frictions and a much lower real wage than before, that the government continues to subsidize less efficient public-owned enterprises that compete with private companies in the provision of private goods, and so on.
It is unfortunate that the workhorse of central bankers and IMF economists is the New-Keynesian model where any decline in economic activity must be squeezed out of price stickiness. And it is shocking that when the model fails, the diagnosis is that it is because it was not Keynesian enough. So long as this remains the mindset, there will be too few attempts to measure these non-Keynesian frictions and their impact, and the result will be bad science as well as bad policy.
Thanks for the link and very thoughtful comment.
DeleteOur central bankers, IMF and other NGO economists do indeed view the world through deeply "macro" lenses. Greece makes a strong case that microeconomic problems are more important than the usual macro suspects of overall deficits, tax revenues, interest rates, and so forth.
Constantine,
DeleteThanks for the article. Lots of good stuff to think about regarding improving trade balance - I would think that qualifies as a macro issue.
Kostas,
ReplyDeleteNo reason to be sorry because if you re-read this thread you will find that until your last comment the term "austerity" was never used. The comment to which you were ostensibly responding to referred to government spending. Government spending includes interest on debt, full stop.
"Austerity" is an awful word. First, it is a term that has no precise meaning (despite your attempt to give it your own for purposes of this discussion) and second, it is merely used and abused by politicians and politically-minded economists to give a particular spin to arguments. See the comments below (wherein Professor Cochrane seems to disagree as to the origin of the term). It is imprecise, loaded with opportunities for rhetorical abuse and completely unhelpful in discussions such as this one. Playing games with definitions is not going to make government spending in any real sense go down.
With respect to interest expenditures, I'm not inclined to give much credit to Greek "austerity" for that 4 percent figure given the fact that it is largely the result of three successive bailouts granted by other EU members (and that number does not comprise the total debt servicing costs). You argue that the interest expense is not "discretionary". I cannot imagine what relevance this has; however, I'm thinking about someone who decided to go on an expensive holiday that he could not afford and therefore put it on the credit card. That person then argues he is being "austere" because he currently has to pay back interest (and principal) on the debt because those payments are not "discretionary", never mind the non-discretionary nature of that holiday. It is a pretty neat trick how that discretionary expenditure is magically converted to a non-discretionary expenditure the moment it is incurred. If only Midas had that touch!
I 'm pretty sure you wont find many people besides yourself who can comprehend and appreciate the above comment. I for one was not able to do that after multiple readings.
DeleteThe facts of life are that Greece implemented discretionary measures in current expenditure and revenue worth almost 60bn during 2010 - 2014. Unfortunately these had the effect of lowering nominal GDP by ... 60bn.
The fact that multipliers were high (as they are supposed to be in periods of large output gaps) and can explain most of the economic contraction in Europe is quite accepted as reality.
And I merely pointed out the fact that interest expenditure is low in Greece and actually increased during the first bailout. You either have the creditors supporting debt dynamics through reduced interest payments or you perform early debt restructuring. It's simple arithmetic, regardless if it is convenient to some creditors or not.
The paper on Greek taxation is by the very capable Georgia Kaplanoglou of the Department of Economics of the University of Athens. Here is a link to it :
ReplyDeletehttp://crisisobs.gr/wp-content/uploads/2015/04/5_%CE%95%CE%AF%CE%BD%CE%B1%CE%B9-%CE%B1%CE%BB%CE%AE%CE%B8%CE%B5%CE%B9%CE%B1-%CF%8C%CF%84%CE%B9-%CE%BF%CE%B9-%CE%AD%CE%BB%CE%BB%CE%B7%CE%BD%CE%B5%CF%82-%CF%85%CF%80%CE%B5%CF%81%CF%86%CE%BF%CF%81%CE%BF%CE%BB%CE%BF%CE%B3%CE%BF%CF%8D%CE%BD%CF%84%CE%B1%CE%B9.pdf
It is in Greek but the tables and graphs are more than eloquent.
It is quite probable that the researcher has prepared an updated version, since the data run up to only 2013. There may even exist a version in English. More on those, after I try to contact the author directly.
The main conclusions are these :
Tax rates and tax receipts in Greece are lower than in EU and OECD. However, effective taxation of salary and wage earners is much heavier than the average in EU and OECD. Tax evasion is the culprit.
It took the crisis to get the government to increase the tax wedge for childless, salary-and-wage-earner taxpayers to the extremely high (note by commenter : unsustainably so) levels bearing on salary-and-wage-earner taxpayers with children.
The paper draws heavily on the report by the OECD "Taxing wages". It takes account of direct taxes, indirect taxes and social security contributions, but does not take account of property tax, road tax and local government tax. Those taxes grew mightily during the Greek crisis.
If the commenter may add an opinion, all the Greek governments during the crisis tried to tax their way out of it, alas with the Troika mostly consenting. The Troika failed to note that excessive taxation had already destroyed any prospects for salary-and-wage work in Greece. They only looked at the averages ! After that particular well ran dry, the present Greek government (and the Troika) are seeking to visit the same treatment to the hitherto tax-evading classes, the self-employed. If they get their way, those classes will, in their turn, be ruined, since the only way they can go by is by evading tax (and stealing a big part of the Value Added Tax they collect) and social security contributions. Greek are businesspeole by need, not by choice.
It is, perhaps, ironic (a word of Greek origin) that "austerity" and "austere", derive from the Greek adjective αὐστηρός, meaning strict, rigorous, a disciplinarian.
http://www.perseus.tufts.edu/hopper/text?doc=Perseus%3Atext%3A1999.04.0057%3Aentry%3Dau%29sthro%2Fs
George J. Georganas
PS The fact that the name of the author of this paper did not appear in initial press account may be significant, but I have failed to find out why.