The paper examines the relationship between the severe economic crisis facing Greece and the country’s social protection system, arguing that this relationship is ambivalent. On one level, the welfare state itself has contributed in a far from trivial way to the fiscal crisis of the state, with its various failures including huge deficits in key programmes such as pensions and health. On a second level, the crisis and the measures to counter it deprive the welfare state of resources, while at the same time setting in motion sweeping changes. On a third level, social protection can help cope with the consequences of the crisis, but enhancing its capacity to do so will require considerable reconfiguration and proper funding of social safety nets. The paper concludes by discussing the prospects for a revival of welfare state building in Greece in the current harsh climate.

This paper analyzes the response of earnings to payroll tax rates using a cohort-based reform in Greece. All individuals who started working on or after 1993 face permanently a much higher earnings cap for payroll taxes, creating a large and permanent discontinuity in marginal payroll tax rates by date of entry in the labor force for upper earnings workers. Using full population administrative Social Security data and a Regression Discontinuity Design, we estimate the long-term incidence and effects of marginal payroll tax rates on earnings. Standard theory predicts that, in the long run, new regime workers should bear the entire burden of the payroll tax increase (relative to old regime workers). In contrast, we find that employers compensate new regime workers for the extra employer payroll taxes but not for the extra employee payroll taxes. We do not find any evidence of labor supply responses around the discontinuity, suggesting low efficiency costs of payroll taxes. The non-standard incidence results are the same across firms of different sizes. Tax incidence, however, is standard for older workers in the new regime as they bear both the employee and employer tax. Those results, combined with a direct small survey of employers, can be explained by social norms regarding seniority-based pay which create a growing wedge between pay and productivity as workers age.

No abstract

In recent years the world economy has been in turmoil. The global financial crisis of 2007 -09 was followed by the sovereign debt crisis of 2011 -13, interrupted by a modest recovery. Several authors have labelled this the 'Great Recession' (Jenkins et al. 2013), as it is affecting large areas of the globe, and because its duration and depth exceed those of previous downturns. In Europe, the combined gross domestic product (GDP) of the 27 European Union (EU) member states contracted by 4.5 per cent in 2009 relative to the year before. It subsequently recovered somewhat, but once again registered negative growth in 2012 and stagnated in 2013. Overall, by 2013 the European economy had shrunk by 1.2 per cent relative to its 2008 level.The recession was an archetypal asymmetric shock, as some countries were affected much more than others. In Greece the size of the economy declined by over 23 per cent in 2007-13. In Portugal and Spain, the size of the contraction from peak (2008) to trough (2013) was around seven per cent, in Italy almost nine per cent (in 2007 -13). Unemployment in the EU rose by 3.6 percentage points (ppts) in 2007 -13 (Eurostat 2014. Again, things were much worse in those countries worst hit by the crisis, and especially in Greece and Spain, where the unemployment rate went up by as many as 19 and 18 ppts, respectively (in 2007 -13).

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. Policy points• Fiscal consolidation through spending cuts and tax increases raises the risk of increased poverty and inequality.• To prevent this, austerity policy packages need to strengthen the social safety net (through both income support and access to essential services) and to compensate the weakest groups for their losses.• The Greek crisis combines drastic deficit reduction with a deep and protracted recession. This has raised the demand for social protection, but the response of the Greek welfare state has been inadequate.• We find that in 2010, the first year of the Greek crisis, keeping the poverty line fixed at 60 per cent of 2009 median real incomes, poverty has risen dramatically.• Changes in inequality were less severe: some austerity policies appear to have had a progressive effect. However, in relative terms, the poor seem to have contributed more to the government's fiscal consolidation effort than the rich.