This paper deals with the process of accumulating overdue tax debts in Greece and brings out its main features. It focuses on the consistently high collection gap ratios that have led to the accumulation of tax arrears and, although the role of tax administration and debt stock management are acknowledged as crucial factors in reducing the collection gap and the stock of arrears respectively, it explores the role that fiscal policy could play. While the literature usually centres on the administrative side of collection efficiency, the present paper shows that tax policy variables such as the tax burden may play a crucial role. The analysis makes use of data never employed before to the best of our knowledge, so that various aspects of the tax debt accumulation process are revealed. We employ a simple simultaneous equation model that focuses on tax policy aspects and we conclude that increasing tax assessments boosts collection gaps. This creates a vicious circle whereas collection gaps push to higher tax assessments and so forth. Given the fiscal constraints of the economy we conclude that although the stock of tax debt may be significantly reduced only through extensive write-offs of non-performing debts and penalties and improvement of the tax administration, tax policy, although a non-sufficient condition can ensure to a certain extent that tax debt increases are checked.
Key words: Tax administration, tax debt, tax collection, tax penalties, collection gap, compliance gap.
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