Tax and Trust: The Fiscal Crisis in Greece

Abstract

The paper aims at highlighting 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 that result in low tax revenue, relate to the structure of the Greek economy and to the failures of formal institutions (such as poor function of the tax administration and lax tax enforcement). At the same time such failures are rooted in and at the same time reinforce failures of informal institutions, namely low levels of trust to institutions and perceived fairness of the tax system.

Keywords: Greek fiscal crisis, tax system, tax morale, institutions, tax administration

JEL Classification: H26, H20, H62, H24, H25