Around the World in Taxes: Greece and Italy

Tax Notes reporter Elodie Lamer and freelance reporter Matteo Rizzi discuss paying taxes in Greece and Italy and how the citizens in those countries feel about it. 

For more, read the tax morale series for free in Tax Notes:

• Church or State: Italian Income Taxes and Symbolic Choice
• Haratsi to I Krísi: Avoiding Taxes as an Act of Greek Patriotism

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Credits
Host: David D. Stewart
Executive Producers: Jeanne Rauch-Zender, Paige Jones
Producer: Jordan Parrish
Audio Editor: Laura Kondourajian

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Nominate someone for the Tax Analysts Award of Distinction in U.S. State and Local Taxation! For more information, visit awards.taxanalysts.org.

Transcript

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: summer travel, part 1.

As summer gets into full swing and we here at Tax Notes Talk finish planning our vacations, we wanted to take our listeners on a few international trips. And of course, because everything has a tax angle, we'll be talking about the tax systems and tax morale in the countries we'll be "visiting."

These trips are inspired by a series our international freelancers and reporters wrote a few months ago, where they considered the social, political, and historical factors that have shaped the public's perception of paying taxes. In this episode, we'll be traveling to Greece and Italy.

Joining me now is Tax Notes senior EU reporter Elodie Lamer, who is the mastermind behind this series. Elodie, welcome back to the podcast.

Elodie Lamer: Thank you for having me.

David D. Stewart: So first of all, could you tell us a bit about this series?

Elodie Lamer: Well, I've been always quite fascinated about how cultural differences can explain why people disagree at the EU level, which I cover every day. And there was one day where I received a letter from a charity I'm donating to, and they were basically telling me, "This is what your money helped us do this year." And I was like, "Oh, that's great. I wonder why the tax administration doesn't do that." And then I checked my tax return and they actually tell you that, how much you give, how much goes to public healthcare or stuff like that. And then I thought, "Oh, that would be great if I could actually decide where I want to put my money." Because I think in Belgium, I would put everything in mobility because mobility is a nightmare. Anyway.

But then making a bit of research, I saw that Italy actually does that, and the unintended consequence of that is that the money went to the church, and so the church became really powerful in Italy. And I was like, "OK, I think there's something interesting to do about consent to taxes and not looking at one country, but looking at different countries and trying to find out if cultural background explains why people consent to tax more than in other countries." And then that's how it all started basically.

David D. Stewart: The story that you dove into was Greece. Could you tell us why you picked that?

Elodie Lamer: Yeah. Well, I remember during the crisis reading somewhere that with the austerity measures that were introduced in Greece and pushed by the European Commission, the European Central Bank, and the IMF (International Monetary Fund), that we misunderstood the Greeks because we don't understand that the defiance of the states which explains why they don't want to pay taxes, why the shadow economy is so big in Greece, dates back to the Ottoman Empire.

That stayed in my mind; I don't know why. And I was like, "OK, maybe Greece would be an interesting case to look at." I dug a bit into Belgium, which is my country, and people just told me that in Belgium, the only thing that pushed the consent to tax is the fear of penalties, which is financial. But I was like, "OK, I want to do Greece because it's a really interesting case for that."

David D. Stewart: All right. So could you give us a brief overview of how Greece's tax system works?

Elodie Lamer: So it's a pretty traditional tax system in Europe. I was checking figures this morning, and when you look at OECD figures, you can see that Greece depends a lot on indirect taxes. So for example, taxes on corporate income represent half the OECD average. So it's 6 percent of total of tax received. And in the OECD, it's 12 [percent]. Taxes on personal income is 14 percent, when in the OECD it's 24 [percent]. But then when you look at taxes on property, it's 7 percent and 5 [percent] in the OECD average. VAT is 22 percent, 21 [percent] for the OECD average, and other taxes on good and services are twice the OECD average. So they rely a lot on indirect taxes.

David D. Stewart: And you alluded a bit to the historical roots of the Greek tax system. Could you tell us more about the history?

Elodie Lamer: So when I worked on this story, I read a lot of studies that explained that the relationship between the Greeks and taxes had deep historical roots, and it stemmed at least to the mid-15th century when the Ottoman Empire began its occupation. They levied a tax that they called haratsi on non-Muslim subjects. I've read a few studies that said that it was a push to try to make people convert. And so at that time, because it was a foreign occupation, Greeks were seeing tax evasion as a patriotic act.

David D. Stewart: More recently, Greece has suffered a significant debt crisis, and there were some bailouts. So how did the history feed into that?

Elodie Lamer: So as you probably remember, when the socialist government of George Papandreou took office in 2009, they realized that the data of the deficit had been misreported by his predecessor. So the deficit was 12.5 percent and not 3.7 [percent]. So not only was there the scandals, but also the deficit was super high and so financial market shut them down. They lost access to financial market basically, and they had to request the EU or the eurozone for financial aid, which was really hard because we have a no bailout clause in EU treaties. We found a way, but the condition was that we would not lend money blindly. So we would make sure that they introduce some reforms that would help them put their accounts in order.

But the thing is that they went with a lot of emergency taxes, which hit the Greek society harsh. There was one property tax during the crisis that the Greeks started calling haratsi as well. And you have to remember that because we were the one asking for these reforms, we had what we called back then the Troika. So the European Commission, the European Central Bank, and the International Monetary Fund going, I think it was every three months, checking that the Greeks were doing what they were asked to do. And if they were not doing that, they would not get a disbursement of money. So it looked a bit like foreign interference as well.

David D. Stewart: Could you tell me about the 4-4-2 system?

Elodie Lamer: So in 2020 the European Stability Mechanism, which was the bailout fund that was created in the middle of the euro crisis, they made some sort of autopsy of the Greek debt crisis, and they concluded that the problem with Greece was deep-seated corruption, weak institutions, sustained tax evasion, excessive state spending, etc.

In this autopsy, the bailout fund, the ESM pointed out to social practices, what they call diaploki or entanglement, fakelaki bribes or rousfeti, which is political favor. And they said that it was deeply ingrained in Greek society. And then in this same autopsy, I don't know if I can call that autopsy, but I'll stick to that word.

They said that they identified a system that was prevalent in Greek tax collection, and they compared it to the 4-4-2 soccer player formation. I know nothing about football or soccer, I don't know. But in the tax sphere, it means that 40 percent went to the tax controller, the taxpayer gets to keep 40 percent and only the remaining 20 percent enter the state coffers. So just to say that enforcement was really weak and apparently corruption was widespread.

David D. Stewart: And what sort of things did we see happen during the bailout?

Elodie Lamer: So if you traveled during the crisis in Greece, the picture was really sad because there were a lot of shops that were closed down. And so you could see that the shock treatment that they tried to save the Greek economy was actually making things worse. So what you could see during the crisis is that the more they wanted to raise taxes to raise revenues, the more activities went to shadow economy.

When austerity measures failed to provide the revenue rise that they were expecting to get, then they would impose a successive round of austerity. So it was really a vicious circle. But what you could see, and something that really struck me when I went to Greece during the crisis, I think because I needed to report on that, is that in the metro, when you went in the metro, people coming out of the metro would put their ticket in your hands because they knew you could not afford, probably you could not afford your ticket because even successful people were struggling during the crisis. That's how harsh austerity measures were. So they would put their own tickets in your hand. And so what you could see is what some studies have called the shadow welfare state compensating for gaps in public services. So people were actually helping each other a lot. So that's basically what we could witness during the crisis.

David D. Stewart: So how did the crisis affect tax morale?

Elodie Lamer: So basically, because austerity measures failed to raise the revenues they were hoping to raise and the welfare state was not performing as well as it should be, the social contract was kind of broken. There was one study that was interesting as well, which was done by the University of Macedonia, and they concluded that tax reciprocity, that the reciprocation of a fair exchange between taxes paid and public good received is the most important factor that determined, actually, the tax morale in Greece, and other things like peer effects, social influences, or cultural factors have a smaller influence. And since the crisis was so harsh, it exacerbated the perception of unfairness because the rising tax burden was not fairly allocated. That's what the researcher of the University of Macedonia concluded. And then they recommended targeting unfair aspects of the tax system, like tax amnesty or preferential tax treatment.

David D. Stewart: And how is Greece working to fix their issues?

Elodie Lamer: One of the most important things they did was improving the governance of the tax administration. So basically, in 2017 they finally had a proper independent authority for public revenue, which became operational in 2017. So the fact that it was not a part of the Ministry of Finance and it was an independent body helped a lot with the perception.

And so as the IMF recently emphasized this independent authority for public revenue, which became operational in 2017, it finally gave Greece a tax administration that is insulated from political interference, as the IMF puts it. And they say that the impact was quite tangible because between 2013 and 2017, the tax-to-GDP ratio really rose. It was 25.8 percent in 2013 and 27.6 percent in 2017.

And for the IMF, it really reflects a stronger compliance and improved institutional capacity. And in Greece, this was really key. And then the second thing that really helped the Greek tax authority collect tax better was digitalization. So they started digitalization for VAT collection, for example. And also the commission concluded in 2025 that the Greek state had started widening the tax base, which also helped fairness, I guess.

David D. Stewart: Well, Elodie, I thank you so much for coming here and talking about this. This whole series has been great. Thank you so much for being here.

Elodie Lamer: Well, thank you for accepting to launch this project, and I hope we'll have other projects. I think there are other tax issues that we could look into with all our correspondents, and yeah, I'll try to come up with new ideas.

David D. Stewart: Looking forward to it.

Joining me now is Matteo Rizzi, a freelance reporter who writes for Tax Notes. Matteo, welcome to the podcast.

Matteo Rizzi: Thank you.

David D. Stewart: So why don't you start by setting the stage and telling us a bit about yourself and where you're based?

Matteo Rizzi: Of course. Thank you so much for having me. My name is Matteo Rizzi. You pronounced it perfectly. I'm a journalist, of course, tax journalist. And I'm based in Milan, Italy, where we would define as the Italian business capital.

David D. Stewart: Turning to the topic at hand, that would be tax morale specifically in Italy, could you tell us just first of all, how does the tax system work there?

Matteo Rizzi: In short, like the majority of Western countries, Italy relies heavily on personal income tax where taxpayers file an annual tax return, but Italy has a unique feature built into its system. When you file your taxes, the state asks you where you want to allocate a small portion of your income tax revenue. It doesn't change the amount of tax you owe, but it gives you a say in where a portion of your money already collected actually goes.

David D. Stewart: So I think we're going to dive a bit into that, but first I want to take a step back and ask you personally, what is your experience of paying taxes in Italy?

Matteo Rizzi: Personally, I use a professional tax adviser — in Italian, we say commercialista — to handle my tax return. But every year, more and more Italians manage their tax return in an independent way without an adviser. Because our revenue agency started this instrument, which is called prefilled return, that provides the exact data that, for example, your employer has already communicated to the agency. So basically, the revenue agency builds what it's called cassetto fiscale, which is basically a tax drawer where the revenue agency collects all your personal data so you can straight after that make your tax return.

David D. Stewart: Let's turn to the subject that you mentioned a little bit earlier and the 0.8 percent to a preferred beneficiary. So tell me about that. Where do you pick, and who's getting this money?

Matteo Rizzi: This system is known as the otto per mille, which literally translates into eight per thousand. This system allows taxpayers to select a beneficiary. Signing a specific section on your annual tax return, you can choose the state itself or one of the several recognized religious denominations. By far, the Catholic Church gets the most designations, historically receiving the biggest share of the funds.

The system actually was created after an agreement between the state and the Vatican in 1984, which replaced the direct funding by the state of the Catholic religious activities such as priests' salaries. Our constitution, written in 1948, established that all religions are equal. So now all the religions that have made an agreement with the Italian state can receive funding through the choices taxpayers make.

David D. Stewart: So how big a pot of money are we talking about here? How much is being allocated?

Matteo Rizzi: The last data we have available that are related to 2021 tax returns, it's about €1.5 billion. This money has been distributed in 2025, and the Catholic Church received about €1 billion, around 70 percent. The state ranked second with almost €400 million, around 25 percent. And the rest went to other groups, like the Waldensian Church and the Italian Buddhist Union.

David D. Stewart: So what happens if someone doesn't pick a beneficiary?

Matteo Rizzi: This is the trickiest part and the most controversial one. If a taxpayer leaves a section blank and doesn't choose, the money is not kept by the state. Instead, the unexpressed share is redistributed among all the beneficiaries in proportion of the votes of those who did make a choice. So if you don't vote, your money is still given away based on other people's preferences acting as a massive multiplier for the most popular choices.

David D. Stewart: So how often are people leaving this section blank?

Matteo Rizzi: Actually, the vast majority of people do not choose. In 2021 almost 60 percent of Italians did not select a beneficiary. So this means that the redistribution of unexpressed choices isn't just a minor technical detail; it's the central driver of the entire system.

David D. Stewart: So what are the biggest challenges for this system?

Matteo Rizzi: So a few years ago, the Italian Court of Auditors released a very harsh report underlining all the issues of the system. In particular, the court analyzed three main issues. The first one is the lack of awareness. So many taxpayers have no idea that leaving blank and not signing the system doesn't mean staying neutral. The money is redistributed anyway.

The second is the lack of transparency. So there is no unified framework to monitor or evaluate how these billions are actually spent by the beneficiaries. And third is the uneven access. So a religious group needs to have a formal agreement with the state under the constitution to be part of this system. And also, the state itself doesn't promote itself as a subject that can receive money. So it loses out on funds compared to religious institutions that actually run massive campaigns.

David D. Stewart: So has this system given rise to other similar systems?

Matteo Rizzi: Yeah. Actually the logic has been expanded to other areas. We now have the cinque per mille, which is 0.5 percent. In this case, it was introduced in 2005, and it allows taxpayers to allocate money to nonprofit organizations, like research institutes against cancers, for example, or also to cities to carry out social activities.

But in particular, in this case, the system is capped. The limit is €600 million. And then we also have the due per mille, the 0.2 percent, which was introduced in 2013. This system was created to fund political parties when the state decided to abolish the direct financing of political parties by the state. However, these two systems, unlike the otto per mille, do not redistribute unexpressed choices. So if you don't choose, the money simply stays with the state.

David D. Stewart: I find it fascinating to hear how this system works, and I'm a little bit shocked by the lack of participation, but it has been an excellent story. Thank you so much for bringing it to us.

Matteo Rizzi: Thank you so much. I hope it was interesting to know a little bit more about the Italian tax system.

David D. Stewart: That's it for this week. You can follow me online at @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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