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Tax administration reforms and the fight against tax evasion: Recent evidence from Greece

Greece is currently implementing a fiscal adjustment programme aimed at tackling tax evasion. This column discusses the impact of recent tax administration reforms on tax compliance in Greece. The intensification of audits, enforcement of penalties, and efficient collection of past debts can induce tax compliance and raise the collected revenue. These findings could contribute to the successful conclusion of the fiscal consolidation programme.


Greece is currently implementing an ambitious, EU-IMF financed, fiscal adjustment programme, the so-called Economic Adjustment Programme (EAP). One of the goals of the EAP is to boost revenue performance by tackling tax evasion through improvements in tax administration. These involve greater autonomy for the tax authority, intensification of tax audits, and greater emphasis on risk-based auditing techniques targeting individuals and firms more liable to evade taxes. In order to monitor progress as regards the reform of tax administration, bi-annual structural benchmarks (or quantified targets) have been set up and have to be met by the Greek authorities (see European Commission 2013, IMF 2013).

These structural benchmarks involve meeting specific targets as regards the number of tax audits that have to be conducted in case of large enterprises (full scope or regular and temporary audits), high wealth individuals/self-employed, and VAT non-filers. In addition, these structural benchmarks involve the achievement of specific targets as regards the collection rates of audits as a percent of the assessed taxes and penalties. Finally, structural benchmarks have been set up regarding internal control assessment and human resource integrity (audits on assets of managers of local tax offices and on assets of auditors themselves). Emphasis has also been placed on the re-training of personnel and the modernisation of tax revenue administration structures.

The intensification of tax audits

The intensification of audits since the summer of 2012 has contributed to reducing the number of tax offenders. Using a novel dataset on summer 2012 VAT-related tax inspections in tourist and high economic activity areas in 13 Greek regions, I find statistically significant evidence that the intensification of tax audits can induce tax compliance (Tagkalakis 2013). In particular, in the period from July to September 2012, 5167 tax audits took place and charges were pressed in 2852 cases; the overall tax offenders-to-audits ratio was 55.2%. The highest tax offenders’ ratios were found in Crete (74.8%), Central Greece (66.3%), South Aegean (65.8%), and the Ionian islands (66.3%).

Controlling for time and fixed effects, I find that a 1% increase in the number of tax inspections per day of audit lowers the number of tax offenders per day of audits by about 0.3-0.4%.

Moreover, the sensitivity of the ratio of tax offenders to increases in tax inspections is greater in high unemployment and low educational level areas and in tourist destination areas, such as islands. Therefore, a better targeting of tax audits in the abovementioned areas will be conducive to reducing tax evasion (Galbiati and Zanella 2012). Moreover, raising the educational level will improve the respect of the rule of law and could increase tax compliance (McGee 2012). Finally, a better economic outlook as reflected in increased economic sentiment indicators encourages tax compliance.

These findings are highly significant at the current juncture for Greece as they show that an intensification of audits can be a useful enforcement strategy for tax legislation. They can contribute to deterring tax evasion, increasing tax collection efficiency and raising tax revenues.

The revenue impact of tax audits

As a next step the revenue impact of tax audits was investigated (Tagkalakis 2014b). To this end, newly released monthly data by the Hellenic Ministry of Finance was used covering completed risk based audits and their revenue yield in terms of collected taxes and fines over the period January 2012 to December 2013. The tax audits were targeted and involved the following three categories/groups: large enterprises, high wealth individuals/self-employed, and VAT non-filers.

According to Ministry of Finance data in the period from January 2012 to December 2013, 33404 tax audits were conducted with a total proceed of €533.7 million, or 0.30% of the 2013 GDP; while over the same period tax revenues (corporate and personal income taxes and VAT) amounted to €50.1 billion.

The econometric analysis indicates that on a yearly basis, a 10% increase in tax audits (about 1670 more audits) will increase tax revenue by about €251 million, or 0.13% of the 2013 GDP. This is the so-called indirect effect of tax audits and works through increased tax compliance (as in Dubin et al. 2007).

Therefore, in accord with earlier findings (e.g. Galbiati and Zanella 2012,  Ratto et al. 2013), a substantial increase in the number of tax audits (by mobilising more resources and better targeting groups more inclined to tax evade) could lead, ceteris paribus, to additional tax revenues from both the direct and indirect effect of tax audits. These revenue proceeds could exactly match or even outweigh the expenditure saving from various painful fiscal consolidation measures undertaken in recent years, such as the increase in the statutory retirement age from 65 to 67 (with expected yield of €264 million in 2014), cuts in supplementary pension allowance (with expected yield of €114 million in 2014), and the abolition of personal income tax deductions (with expected yield of €237 million in 2014, see MoF 2013).

Despite the recent improvements, tax arrears continue to be a problem

Recent data unveiled by the Hellenic Ministry of Finance revealed that tax arrears increased from €44.9 billion at the end of 2011 to €55.1 billion at the end of 2012, and have further increased to about €62.1 billion, or 34.0% of GDP at the end of 2013 and now stand at above €70.0 billion (or about 38.9% of the 2013 GDP) at the end of October 2014.

The rising trend in tax arrears continued despite the important steps that were initiated in 2013 towards improving the collection of tax and social security contributions debt (see European Commission 2013). These actions involved the launch of a ‘basic scheme’ with a 12-month duration designed to become the normal way of repaying tax or social security debt and a special last-chance scheme (‘fresh start’) that allowed debtors (affected by the difficult economic conditions, liquidity pressures, and increased tax obligations) to repay old (2012 and before) debt in instalments until 2017. The Greek government has recently revamped this system in order to improve the collection of tax and social security contributions debt. In addition, a new legislation was put in place allowing for the simplification of the procedure to classify debt as uncollectable, and suspend collection activities on uncollectable debt.

Mounting tax arrears have negative direct and indirect effects on tax revenues. The indirect one works through weak tax compliance. It is related to the fact that (in the past) Greek authorities have recurrently resorted to tax amnesties as a way of collecting overdue debt – generating moral hazard problems for law-abiding tax-payers.

Building on the above-mentioned evidence, we investigate the effects of various tax administration performance indicators (associated with tax arrears and uncollected fines and penalties) on VAT revenue collection (Tagkalakis 2014b). I use information unveiled by the Greek authorities on VAT revenue collection, VAT-related tax arrears (due to tax amnesties) and uncollected (VAT-related) fines over the period 2006-2011 at the regional level.

My findings show that an increase in the stock of uncollected (VAT-related) tax fines and in the stock of (VAT-related) tax arrears due to tax amnesties exert negative effects on tax compliance and reduce VAT revenue.

Furthermore, as in the previous study, I have found evidence that an improvement in tax enforcement mechanism and, in particular, in the collection rate of taxes and fines associated with auditing activity can improve tax compliance.

In more detail, I find that a 1% increase in VAT-related tax arrears reduces VAT revenue by about 0.02-0.03%; while a 1% increase in the stock of uncollected (VAT-related) fines reduces VAT revenue by about 0.01-0.02%. Despite the fact that the impact on VAT revenue is small in quantitative terms (e.g. compared to the impact of slump in economic activity), it remains a very important finding, as it shows that the building up to tax arrears can act as a disincentive for tax compliance eroding tax moral. 


Overall, these findings indicate that improvements in tax administration that involve the efficient collection of past debts, the strict enforcement of penalties and fines, and the intensification of audits can induce tax compliance fight tax evasion and raise revenue collection. This will improve the chances for a successful conclusion of the fiscal consolidation effort. At the same time, it contributes to a fair burden sharing of the adjustment effort, thus, increasing the support of the public to the fiscal consolidation.

Author’s note: The views of the article are those of the author and do not necessarily reflect those of the Bank of Greece.


Dubin, J, Graetz M., and E Wilde (1990), “The effect of audits rates on the federal individual income tax 1977-1986”, National Tax Journal, 43, pp. 395-409.

European Commission (2013), "The 2nd Economic Adjustment Programme for Greece, Third Review –July", Occasional Paper, No. 159.

Galbiati, R and G Zanella (2012), “The tax evasion social multiplier: Evidence from Italy”, Journal of Public Economics, 96, 485-494.

IMF (2013), “Greece: First and second reviews under the extended arrangement under the extended fund facility”, IMF Country report, No 20.

McGee, R W (2012), “Age and ethics of tax evasion”, Business and Economics, 6, 441-449.

Ministry of Finance (MoF) (2013), “Update of the Medium Terms Fiscal Strategy 2013-2016”

Ratto, M, R Thomas, D and Ulph (2013), “The indirect effects of auditing taxpayers”, Public Finance Review, 41(3), pp.317-333.

Tagkalakis Athanasios (2013), “Audits and tax offenders: recent evidence from Greece”, Economics Letters, 118(3), 519-522.

Tagkalakis Athanasios (2014a), “The direct and indirect effects of audits on the tax revenue in Greece”, Economics Bulletin, Vol. 34, no. 2, pp. 984-1001.

Tagkalakis Athanasios (2014b), “Tax arrears and VAT revenue performance: Recent evidence from Greece”, Economics Bulletin, Vol. 34, no. 2, pp. 1141-1155.

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