The Distributional Impact of the Greek Crisis in 2010

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  • Submitted October 2011.

  • Earlier versions of this paper were presented at conferences and seminars held in Athens and elsewhere in Greece, as well as in Brussels, Catania, Glasgow, Milan, Modena, Odense and Valencia. The authors thank participants for their reactions. In particular, they are indebted to André Decoster, Francesco Figari, Kostas Manios, Daniela Mantovani, Maggie Minoglou, Vassilis Monastiriotis, George Ntouros, Alari Paulus, Isaak Sampethai, Holly Sutherland, Platon Tinios, Panos Tsakloglou and Dirk Verwerft for detailed suggestions and practical assistance. The authors also thank two anonymous referees for their comments and advice. Financial support from Athens University of Economics and Business under the Basic Research Funding Programme (contract no. EP-1805-40) is gratefully acknowledged. The usual disclaimer applies.

Abstract

The severe economic crisis affecting Greece is widely thought to be having a significant social impact in terms of greater inequality and increased poverty. We provide an early assessment of whether (and to what extent) this was the case in 2010, the first year of the Greek crisis. We distinguish between two interrelated factors: on the one hand, the austerity policies taken to reduce fiscal deficits; on the other hand, the wider recession. Using a tax–benefit model, we attempt to quantify the distributional implications of both. With respect to the austerity policies, we focus on the changes affecting taxation, pension benefits and public sector pay. With respect to the wider recession, we model the effects of rising unemployment and inflation, as well as of lower earnings for self-employed workers and for employees of private firms. In simulating the impact of these changes on the distribution of incomes (and in estimating how the total burden of the crisis is shared across income groups), we take into account tax evasion and benefit non-take-up. We conclude by discussing the main findings, methodological pitfalls and policy implications of our research.

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