Quelle Surprise! Greece is REALLY REALLY Bad at Collecting Taxes!
Big Bad Bank, via Richard Smith, pointed out a post last fall that didn’t seem to get the traction it deserved (when market sentiment about Greece was peculiarly less pessimistic than now) that Greek tax administration is world class wretched. This matters because even if you operate under the fantasy that austerity works, you still have to be able to cut expenditures and raise taxes. But the logic of “raising taxes” is that if you increase tax rates, you’ll increase tax receipts. If you are already really terrible at collecting taxes, the odds are high that rate increase will not translate fully into higher tax revenues. And even if Greece were to decide to improve its tax apparatus, the machinery is in such wretched shape that it would take years of investment (and changes in laws) to make a dent.
The worst is that when your read this description (which I am excerpting at length, the details are intriguing and damning), although corruption plays a significant role, terrible institutional and systems design is an even bigger culprit.
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