Dynamic aspects of the underground economy in Greece

Abstract

The size and trends of the Greek underground economy are examined over the period of 1958 to 2011. Estimates vary according to the method used and the time period under investigation. Overall, more than one quarter to one third of Greek economic activities have been either unrecorded or hidden from official statistics. Tax evasion, labour market rigidities, lack of competition and over-regulation are among the contributing factors. The underground economy is often viewed as a serious obstacle to economic growth. However, the empirical results are ambiguous. Dynamic models are explored to examine the relationship between the underground economy and economic growth. In the short run, one percentage point increase in the rate of economic growth would reduce the underground economy by 0.13, and in the long run by 1.26. The Greek Government is currently introducing structural reforms pursuing fiscal consolidation, transparency and e-governance strategies to combat tax evasion, and monitoring strategies in the statistical system to produce valid and reliable data sets.