There is an argument making the rounds lately, to be more specific, that government expenditures in Greece are pretty high as a % of GDP but that the same goes for other EU countries. Funnily enough, this is not that far from the truth. Here’s the relevant chart:
 |
| source: OECD |
But relying solely on this data point to build an argument is simply wrong, since it ignores the other side of the coin, namely government revenues. I’m not talking about the cost of raising debt, I’m wondering whether iax revenues can support this level of public spending.
Here’s the data for personal income tax and taxes on income and profit as a % of GDP. Greece, is easily at the bottom of the table. Translation, in order to have similar levels of government outlays you need to have at least comparable levels of government revenues.
Tax revenues for Greece are exceptionally low, something that hints of a quite large informal sector.
 |
| source: OECD |
 |
| source: OECD |
To make up for low income tax revenues, Greece taxes more heavily goods and services, something that allows the government to indirectly tax a bit of the informally generated income. I had talked about that in an older post.
 |
| source: OECD |
Of course this lag in government revenues leads to a larger government deficit for Greece. If this was the only issue for Greece, it would be fine (well maybe not). The way that the government balance is calculated was altered this year and there was not one but two upward revisions of the deficit , the second of which is not recorded in the data that comprise the following graph. I don’t know if this affects data for previous years, but I’m sure that OECD wouldn’t include them if that was the case.
 |
| source: OECD |
Of course, the other countries also ran deficits for almost the whole length of the time span pictured in the following graph, even ultra-prudent Germany. To be fair, of those pictured, the country with the best fiscal performance was Spain. This puts into question the whole European model of a “relatively” large state, now doesn’t it?
