Yet, despite the recovery, a puzzle has emerged that despite its ubiquitousness and importance has not attracted the level of attention needed:
The Greek households’ discontent with their current economic situation
- Increased tax compliance and tax collection means that the effective tax burden of Greek households has increased to 21.7% of the pre-tax consumption – much higher than the EU average.
- In parallel, the VAT gap* has declined to 13.7% in 2022 from 25.4% in 2018.
- Yet, public spending has declined to 18.3% of GDP (vs 21.6% in the EU) and the % of income that Greek households spend on healthcare and education is substantially above EU levels (healthcare: 7.7% and 3.7% respectively, education: 3.4% and 0.9% respectively).
- The upshot is that we are experiencing an incomplete transition from private to public space:
i. The transition of private funds to the public sector (through less tax evasion) is well under way. This increases the effective Tax rates and reduces spending power
ii. Yet, the provision of public services is stuck in the past.
So, Greek households do not see an adequate reward on their (much higher) taxes.