The Economic Crisis (2008) and Effects on Income. The Case of Greece

Abstract

This paper investigates the impact on income from the economic crisis of 2008, especially in the case of Greece. We outline literature results relating to income effects of economic crises in various parts of the world in general and the recent economic crisis in particular. What if revealed is that crises always affect the distribution of income and aggravate the problem of poverty, since the weight tends to be unevenly distributed. During the recent economic crisis, risk of poverty has increased, employment prospects are deteriorating and fiscal consolidation measures tend to reinforce inequality. Based on the results of an empirical investigation of secondary data on the income tax and its share on professional and income groups, we study the effects of the economic crisis and the measures implemented to deal with it in Greece. During the recent crisis in Greece, despite the reduction in income, total tax burden was increased due to the increased share of indirect taxes in total tax revenue. Furthermore the share of wages on GDP declined dramatically. It is the lower income groups that shouldered the brunt of fiscal adjustment. After the applied measures, a redistribution of income from the middle and mainly from low to high and very high income groups is recorded, despite the fact that wages and salaries, much less than corporate profits, contribute to overall inequality mainly due to tax evasion. The main mechanism responsible for unequal income distribution involves anti-development and anti-social austerity measures (fiscal and institutional arrangements to enhance labour market flexibility, etc.) implemented under the Memorandum, which led to an increase in the tax burden, mostly of lower incomes, a reduction on available income of households and a deterioration in indicators of economic and social welfare, income inequality and absolute poverty. The economic crisis and the measures implemented to deal with it in Greece, as in other regions of the world in the past and today, is utilized for a high-intensity (in size) and area (in the range of social groups affected) redistribution of wealth, through which the poor become poorer and the rich richer. The European strategy to address the crisis in the Eurozone and especially in Greece reinforced the inequalities and therefore operates as an obstacle to economic recovery and the equitable sharing of its results.