Running Circles Around Greek Tax Collectors

Due to my libertarian inclination, I prefer that governments should set modest tax targets with comparatively low levels of income taxation. Indeed, my favourite tax quote is Sir William Petty's aphorism that was quoted here. As the statement suggests, there are people who are capable of paying taxes but opt to evade taxes and thereby record higher savings or consumption at the expense of others. In spite of my belief that heavy taxation of a few people is bad policy, I still retain the view that tax cheating is despicable behaviour.

And yet governments are not always blameless when a portion of capable citizens easily evade taxes. My argument is that complicated forms of tax reporting and collection give the excuse and opportunity for many capable earners from remitting their taxes promptly. And again, governments tend to look aside when the times are fine and only try to close tax gaps when the economy is doing poorly. Greece instituted some measures to identify and punish tax cheats in order to close its deficit but has had only modest success.

Suzanne Daley reports in the NYT that the level of tax cheating in Greece is so high and done with such shamelesness that government has had to respond. What this story states is that tax cheats and professionals who underreport income face incentives and therefore calculate carefully the probability of their capture. To my mind, the persistence in cheating is not only a dare to government but also a reflection of the citizen's feedback that they consider government to be incompetent. Thinking that the use of satellite photos to identify residences with swimming pools would catch enough of the tax evaders, the failure to execute promptly has led to purchase of pool covers which makes identification more difficult.

This would form background reading for a good lesson on applied economics because it illustrates that tax evaders, like all people, respond to initiatives to catch them. Revenue collectors must be equally nimble and smart and so far, the Greek service is neither of these. Perhaps governments should levy only taxes that they can collect.