This is the real reason Greece has a massive tax evasion problem

Greece athens flagREUTERS/Yannis BehrakisGreek parliament employees raise a mast after they replaced torn-off Greek flag with a new one atop the parliament in Athens Syntagma (Constitution) square April 18, 2012.

Greece’s reform plans are out and one of the big things the new government wants to tackle is the country’s endemic tax avoidance and evasion.

Despite recent headlines that suggested the super-wealthy are the main offenders, there’s an amazing academic paper that shows just how much Greece’s upper-middle class professionals are dodging taxes.

Thanks to Twitter’s Pseudoerasmus for bringing this to our attention in his longer and excellent blog on Greece’s long-term problems. Here’s a section from the 2012 University of Chicago paper:

On average, self-employed Greeks spend 82% of their monthly reported income servicing debt. To put this number in perspective, the standard practice in consumer fiance (in the United States as well as Greece) is to never lend to borrowers such that loan payments are greater than 30% of monthly income. And that is the upper limit…

A number of banks in southern Europe told us point blank that they have adaptation formulas to adjust clients’ reported income to the bank’s best estimate of true income, and furthermore, that these adjustments are specific to occupations… Take the examples of lawyers, doctors, financial services, and accountants. In all of these occupations, the self-employed are paying over 100% of their reported income flows to debt servicing on consumer loans

You read that right: More than 100% of the self-reported income of Greece’s professional classes is going towards paying off consumer debts. Not, we suspect, because they have massive unbearable repayments to make, but because they’re colossally under-reporting their income.

About a third of Greeks are self-employed, nearly twice the European average and the highest in the EU.

A lot has been made of tackling Greece’s oligarch tax evaders, but there’s less discussion about cracking down on the white-collar high income professional classes who are really rinsing their country’s tax system. If finance minister Yanis Varoufakis wants to be successful in cracking down on tax evasion, these are the people he needs to put the screws on.

Here’s a chart below for the professions. In at least 5 sectors, including doctors and accountants, self-employed people are supposedly paying more than they earn on debt repayments every month:

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