The fiscal crisis and the social wage in Southern The fiscal crisis and the social wage in Southern EuropeEurope

• Focus on Focus on GreeceGreece

• Compare the Compare the fiscal structurefiscal structure of Greece, of Greece, Spain, Portugal, Italy, France and EU-15 for Spain, Portugal, Italy, France and EU-15 for 1995-20091995-2009

• Class aspects of fiscal crisis: Estimate the Class aspects of fiscal crisis: Estimate the net social wage (ratio)net social wage (ratio) in Greece and in Greece and other Southern European countries (Are other Southern European countries (Are workers/social policy responsible for the workers/social policy responsible for the recent economic crisis, the public deficits recent economic crisis, the public deficits and the accumulation of public debt in and the accumulation of public debt in recent years?)recent years?)

• Is there a distinct “Southern European Is there a distinct “Southern European welfare state modelwelfare state model”?”?

Public expenditures, taxes and budget deficits as a Public expenditures, taxes and budget deficits as a percentage of GDP in Greece and EU15 (1995-2009)percentage of GDP in Greece and EU15 (1995-2009)

Expenditures- Revenues – Deficit (1995-2009)Expenditures- Revenues – Deficit (1995-2009) EU15EU15 GREECEGREECE DIFDIF

1. Government expenditures / GDP1. Government expenditures / GDP 47.747.7 45.945.9 -1.8-1.8

2. Government revenues / GDP 2. Government revenues / GDP 45.145.1 39.439.4 -5.7-5.7

3. Budget deficit / GDP3. Budget deficit / GDP -2.6-2.6 -6.5-6.5 +3.9+3.9

Public expenditures / GDP (1995-2008)Public expenditures / GDP (1995-2008)

4. Government employee compensation/ GDP4. Government employee compensation/ GDP 10.810.8 11.011.0 ------

5. Education expenditures as a percentage of GDP5. Education expenditures as a percentage of GDP 5.25.2 2.92.9 -2.3-2.3

6. Health expenditures as a percentage of GDP 6. Health expenditures as a percentage of GDP 6.46.4 4.44.4 -2.0-2.0

7. Social protection expenditures / GDP7. Social protection expenditures / GDP 18.818.8 17.217.2 -1.6-1.6

8. Interest payments / GDP 8. Interest payments / GDP 3.63.6 6.76.7 +3.1+3.1

9. General public expenditures / GDP9. General public expenditures / GDP 7.17.1 10.610.6 +3.5+3.5

10. Defense expenditures / GDP 10. Defense expenditures / GDP 1.61.6 2.62.6 +1.0+1.0

Public expenditures, taxes and budget deficits as a percentage of GDP in Public expenditures, taxes and budget deficits as a percentage of GDP in Greece and EU15 (1995-2009) (continued)Greece and EU15 (1995-2009) (continued)

EU15EU15 GREECEGREECE DIFDIF

Expenditures-Revenues–Deficit (1995-2009)Expenditures-Revenues–Deficit (1995-2009)

1. Government expenditures / GDP1. Government expenditures / GDP 47.747.7 45.945.9 -1.8-1.8

2. Government revenues / GDP 2. Government revenues / GDP 45.145.1 39.439.4 -5.7-5.7

3. Budget deficit / GDP3. Budget deficit / GDP -2.6-2.6 -6.5-6.5 +3.9+3.9

Taxation / GDP (1995-2008)Taxation / GDP (1995-2008)

11. Total receipts from taxes and social contributions/GDP11. Total receipts from taxes and social contributions/GDP 41.341.3 34.134.1 -7.2-7.2

12. Total tax receipts/ GDP12. Total tax receipts/ GDP 27.227.2 21.221.2 -6.0-6.0

13. Total (actual and imputed) social contributions /GDP13. Total (actual and imputed) social contributions /GDP 14.314.3 12.912.9 -1.4-1.4

14. Current taxes on income, wealth, etc./ GDP 14. Current taxes on income, wealth, etc./ GDP 13.213.2 8.08.0 -5.2-5.2

15. Taxes on income / GDP15. Taxes on income / GDP 12.312.3 7.67.6 -4.7-4.7

16. Taxes on individual or household income including 16. Taxes on individual or household income including holding gains / GDPholding gains / GDP

9.79.7 4.54.5 -5.2-5.2

17. Taxes on the income or profits of corporations including 17. Taxes on the income or profits of corporations including holding gains / GDPholding gains / GDP

n.a.n.a. 2.92.9 --------

18. Taxes on production and imports / GDP18. Taxes on production and imports / GDP 13.713.7 13.013.0 -0.7-0.7

Summary of the fiscal structure comparison Summary of the fiscal structure comparison between Greece and EU-15 1995-2009between Greece and EU-15 1995-2009

• Greek public expenditures slightly less Greek public expenditures slightly less (1.8%) than in EU-15 on average(1.8%) than in EU-15 on average

• State revenues much lower (6.0%)State revenues much lower (6.0%)

• Hence, average annual public deficits (6.5%) Hence, average annual public deficits (6.5%) in Greecein Greece

• Wages of state workers the same as in EUWages of state workers the same as in EU

• ““Welfare state” spending (health, education, Welfare state” spending (health, education, social security) less in Greecesocial security) less in Greece

• Defense, general services, interest (= Defense, general services, interest (= annual deficit) much higher in Greece annual deficit) much higher in Greece

• Taxes on income (of non-workers) and tax Taxes on income (of non-workers) and tax rates on profits of corporations much less in rates on profits of corporations much less in GreeceGreece

Public Education expenditures/GDP Greece and EU-Public Education expenditures/GDP Greece and EU-15 1995-200815 1995-2008

education expenditures as a percentage of GDP, 1995-2008, Greece and EU 15

0,0

1,0

2,0

3,0

4,0

5,0

6,0

education exp/GDP

EU 15 Greece

Public health expenditures as a percentage of GDP, Public health expenditures as a percentage of GDP,

Greece and EU-15, 1995-2008Greece and EU-15, 1995-2008

government health expendituresas a percentage of GDP

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

average 1995-2008

EE15 Greece

Corporate taxes/GDP average 1995-2008 selected EU countriesCorporate taxes/GDP average 1995-2008 selected EU countries

corporate taxes as a percentage of GDP

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

9,0

1

Average 1995-2008

France

Italy

Greece

Portugal

Spain

Belgium

Denmark

UK

Finland

Netherlands

Czech Rep

Cyprus

Norway

Expenditures- Revenues – Deficit Expenditures- Revenues – Deficit EU15EU15 PortuPortugalgal

ItalyItaly SpainSpain FranceFrance

1. Government expenditures / GDP1. Government expenditures / GDP 47.747.7 43.143.1 49.149.1 40.540.5 53.253.2

2. Government revenues / GDP 2. Government revenues / GDP 45.145.1 39.139.1 45.545.5 38.338.3 49.949.9

3. Budget deficit / GDP3. Budget deficit / GDP -2.6-2.6 -4.1-4.1 -3.5-3.5 -2.2-2.2 -3.3-3.3

Public expend/GDP (1995-2008)Public expend/GDP (1995-2008)

4. Government employee compensation4. Government employee compensation 10.810.8 13.013.0 10.910.9 10.510.5 13.313.3

5. Education expenditures 5. Education expenditures 5.25.2 6.86.8 4.74.7 4.44.4 6.36.3

6. Health expenditures 6. Health expenditures 6.46.4 6.56.5 6.26.2 5.45.4 7.57.5

7. Social protection expenditures 7. Social protection expenditures 18.818.8 14.014.0 18.018.0 13.413.4 21.421.4

8. Interest payments 8. Interest payments 3.63.6 3.23.2 6.66.6 3.03.0 3.03.0

9. General public expenditures 9. General public expenditures 7.17.1 6.86.8 10.310.3 5.75.7 7.67.6

10. Defense expenditures 10. Defense expenditures 1.61.6 1.41.4 1.21.2 1.21.2 2.12.1

Public expenditures, taxes and budget deficits as a percentage of Public expenditures, taxes and budget deficits as a percentage of GDP in France Spain Portugal Italy and EU15 (1995-2009)GDP in France Spain Portugal Italy and EU15 (1995-2009)

EU15EU15 PortugalPortugal ItalyItaly SpainSpain FranceFrance

Taxation / GDP (1995-2008)Taxation / GDP (1995-2008)

11. Total receipts from taxes and social 11. Total receipts from taxes and social contributionscontributions

41.3 35.3 41.9 34.9 45.4

12. Total tax receipts12. Total tax receipts 27.2 23.7 28.9 22.5 27.1

13. Total (actual and imputed) social 13. Total (actual and imputed) social contributions contributions

14.3 11.6 13.1 12.9 18.5

14. Current taxes on income, wealth, etc. 14. Current taxes on income, wealth, etc. 13.2 9.1 14.4 10.5 10.9

15. Taxes on income 15. Taxes on income 12.3 8.8 13.9 10.2 9.9

16. Taxes on individual or household income 16. Taxes on individual or household income including holding gains including holding gains

9.7 5.5 10.9 7.0 7.4

17. Taxes on the income or profits of 17. Taxes on the income or profits of corporations including holding gains corporations including holding gains

n.a. 3.2 2.9 3.1 2.5

18. Taxes on production and imports18. Taxes on production and imports 13.7 14.6 14.2 11.6 15.8

Table 1: Public expenditures, taxes and budget deficits as a Table 1: Public expenditures, taxes and budget deficits as a percentage of GDP in France Spain Portugal Italy and EU15 percentage of GDP in France Spain Portugal Italy and EU15 (1995-2009) (continued)(1995-2009) (continued)

Fiscal structureFiscal structure

• Greece, Portugal and Spain spend less than the EU average, Italy Greece, Portugal and Spain spend less than the EU average, Italy more, France much moremore, France much more

• Greece, Portugal and Spain collect much less than the EU Greece, Portugal and Spain collect much less than the EU average in revenues, Italy the average, France much moreaverage in revenues, Italy the average, France much more

• Inadequate state revenues the reason for public deficits in Inadequate state revenues the reason for public deficits in Greece, Portugal and SpainGreece, Portugal and Spain

• Greece, Portugal and Spain lag behind European averages for Greece, Portugal and Spain lag behind European averages for total and almost all individual tax categories, and Italy is close to total and almost all individual tax categories, and Italy is close to those averages. Taxation in France is based heavily on indirect those averages. Taxation in France is based heavily on indirect taxes (which offset the lighter taxation on household income and taxes (which offset the lighter taxation on household income and profits bringing tax revenues equal to the EU average) and much profits bringing tax revenues equal to the EU average) and much higher than average social security contributionshigher than average social security contributions

• France spends more for wages of public workers, social security France spends more for wages of public workers, social security and social welfare, Greece and Italy spend more for interest on and social welfare, Greece and Italy spend more for interest on public debt public debt

Net social wage as the indicator of the class character of the state Net social wage as the indicator of the class character of the state budgetbudget

• Radical/Marxist Political economy: Who pays Radical/Marxist Political economy: Who pays for social spending (directed at workers?)for social spending (directed at workers?)

a) Workers themselves b) capital (profits) or c) a) Workers themselves b) capital (profits) or c) public budget deficits? public budget deficits?

Examine if net social wage is positive or Examine if net social wage is positive or negative and its impact on negative and its impact on

labor discipline productivitylabor discipline productivity (post fiscal) distribution – profitability – (post fiscal) distribution – profitability –

accumulation of capital and growthaccumulation of capital and growth• Mainstream economics: “welfare programs Mainstream economics: “welfare programs

may lead to cumulative deficits and mounting may lead to cumulative deficits and mounting public debts” (Dreze and Malinvaud, 1994, p. public debts” (Dreze and Malinvaud, 1994, p. 95)95)

Table 5: Net Social Wage DefinitionsTable 5: Net Social Wage Definitions

========================================================================================================

• Net Social Wage = Labor Benefits – Labor TaxesNet Social Wage = Labor Benefits – Labor Taxesnsw = lb – ltnsw = lb – lt

• Benefit Ratio = Labor Benefits / GDPBenefit Ratio = Labor Benefits / GDPLbr = lb / GDP (ec)Lbr = lb / GDP (ec)

• Tax Ratio = Labor Taxes / GDP Tax Ratio = Labor Taxes / GDP Ltr = lt /GDP (ec)Ltr = lt /GDP (ec)

• Net Social Wage Ratio = Net Social Wage / GDP or Net Social Wage Ratio = Net Social Wage / GDP or = Net Social Wage / Employee Compensation = Net Social Wage / Employee Compensation

• nswr = nsw / GDP = Lbr - Ltr nswr = nsw / GDP = Lbr - Ltr oror

• nswr = nsw / ecnswr = nsw / ec

• ==================================================================================================

Allocation of benefits from state expenditures to Allocation of benefits from state expenditures to

workersworkers Categories of Public expenditures classified by Categories of Public expenditures classified by economic functioneconomic function

Labor benefitsLabor benefits

Α. Public ConsumptionΑ. Public Consumption

1. General Public Services1. General Public Services ------2. Defense2. Defense ------3. Public Order and Safety3. Public Order and Safety ------4. Education4. Education Labor Share = workers/total employmentLabor Share = workers/total employment

5. Health5. Health Labor Share Labor Share

6. Social Security and Welfare6. Social Security and Welfare Labor Share Labor Share

7. Housing and Community Services7. Housing and Community Services Labor Share Labor Share

8. Recreation, Culture and Religion8. Recreation, Culture and Religion Labor ShareLabor Share

9. Economic Services9. Economic Services ------10. Other Functions10. Other Functions Labor ShareLabor Share

Allocation of benefits from state expenditures to Allocation of benefits from state expenditures to workers (cont’d)workers (cont’d)

B. SubsidiesB. Subsidies

Subsidies to firmsSubsidies to firms --------------

C. Current transfers to householdsC. Current transfers to households

1. Pensions1. Pensions 100% or Labor share100% or Labor share

2. Unemployment Compensation2. Unemployment Compensation 100%100%

3. Family allowances3. Family allowances 100% or Labor share100% or Labor share

4. Sickness allowances4. Sickness allowances 100% or Labor share100% or Labor share

5. Welfare transfers5. Welfare transfers 100%100%

D. Public InvestmentD. Public Investment

1. General Public services1. General Public services ----------2. Defense2. Defense ----------3. Housing3. Housing Labor shareLabor share

Ε. Property income paidΕ. Property income paid --------1.Interest1.Interest --------2. Rent2. Rent

Allocation of taxes to wage laborersAllocation of taxes to wage laborers

Tax CategoriesTax Categories Labor taxesLabor taxes

1. Personal Income Tax1. Personal Income Tax Labor Share Labor Share

2. Local Government Taxes2. Local Government Taxes Labor ShareLabor Share

3. Corporate Income Taxes3. Corporate Income Taxes ------

4. Social Security Contributions (of workers)4. Social Security Contributions (of workers) 100% (or L.S.)100% (or L.S.)

5. Payroll Taxes5. Payroll Taxes 100%100%

6. Property Taxes6. Property Taxes ------

7.Capital taxes7.Capital taxes ------

8. Indirect Business Taxes (Consumption Taxes)*8. Indirect Business Taxes (Consumption Taxes)* Labor Share = wages / Labor Share = wages / personal consumptionpersonal consumption

9.Other Taxes9.Other Taxes Labor ShareLabor Share

Labor benefit ratio and labor tax ratioLabor benefit ratio and labor tax ratio

labor benefit ratio and labor tax ratio Greece 1995-2008

0,070

0,090

0,110

0,130

0,150

0,170

0,190

0,210

0,230

0,250

0,270

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

labor benefit ratio labor tax ratio

tax ratio = 0.219

benefit ratio = 0.145

tax ratio = 0.234

benefit ratio = 0.181

The net social wage ratio (nswr) in Greece, The net social wage ratio (nswr) in Greece, 1995-20081995-2008

net social wage ratio Greece 1995-2008

-0,090

-0,080

-0,070

-0,060

-0,050

-0,040

-0,030

-0,020

-0,010

0,000

0,010

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

nswr

Average 1995-2002 = -- 7.1%

Average 2003-2008 = --5.2%

Average 1995-2008 = -- 6.3%

The net social wage ratio (nswr) in Greece, The net social wage ratio (nswr) in Greece, 1958-19951958-1995

nsw**/gdp and nsw**/gdp(rev)

-0,12

-0,10

-0,08

-0,06

-0,04

-0,02

0,00

0,02

0,04

0,06

0,08

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

nsw**/gdp nsw**/GDPr

Public Debt / GDPPublic Debt / GDPPublic Debt / GDP

20,0

40,0

60,0

80,0

100,0

120,0

140,0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Greece Spain France Italy Portugal EU-15

Italy

Greece

EU-15

Spain

PortugalFrance

90% of GDP

Public Deficits / GDPPublic Deficits / GDPPublic deficits/GDP

-18,0

-16,0

-14,0

-12,0

-10,0

-8,0

-6,0

-4,0

-2,0

0,0

2,0

4,0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Greece Spain France Italy Portugal EU-15

Public Debt / Public RevenuesPublic Debt / Public Revenuespublic debt/public revenues

0,50

1,00

1,50

2,00

2,50

3,00

3,50

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Greece Spain France Italy Portugal EU-15

Greece

Italy

Spain

France

Portugal

EU-15

Labor Benefit ratiosLabor Benefit ratios

Labor Benefit Ratios

0,100

0,150

0,200

0,250

0,300

0,350

0,400

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Greece Portugal Spain Italy France

Labor Tax ratiosLabor Tax ratios

Labor Tax Ratios

0,150

0,200

0,250

0,300

0,350

0,400

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Greece Spain Portugal Italy France

Net social wage ratiosNet social wage ratiosNet social wage ratios

-0,100

-0,090

-0,080

-0,070

-0,060

-0,050

-0,040

-0,030

-0,020

-0,010

0,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Greece Italy Spain Portugal France

Lbr – Ltr = nswrLbr – Ltr = nswr

GreeceGreece SpainSpain PortugaPortugal l

ItalyItaly FranceFrance

Labor Labor benefit benefit ratioratio

0.1600.160 0.2310.231 0.2360.236 0.2450.245 0.3570.357

Labor Labor tax ratiotax ratio

0.2230.223 0.2650.265 0.2600.260 0.3040.304 0.3800.380

Net Net social social wage wage ratioratio

-0.063-0.063 --0.0340.034

-0.024-0.024 --0.0590.059

--0.0220.022

Net social wage ratio in selected Net social wage ratio in selected countriescountries

CountryCountry AverageAverage

Net social wage ratio Net social wage ratio (nsw/GDP)(nsw/GDP)

USA (1952-1997)USA (1952-1997) -0.067-0.067

UK (1970-1990)UK (1970-1990) -0.024-0.024

New Zealand (1949-1975)New Zealand (1949-1975) -0.016-0.016

Canada (1955-1988)Canada (1955-1988) 0.0000.000

France France -0.022-0.022

ItalyItaly -0.059-0.059

PortugalPortugal -0.024-0.024

Spain Spain -0.034-0.034

Greece (1958-1995)Greece (1958-1995) -0.064-0.064

Greece (1995-2008)Greece (1995-2008) -0.063-0.063

Average values for net social wage ratio, budget deficit and Average values for net social wage ratio, budget deficit and interest paid on public debt as a percentage of GDP, 1995-interest paid on public debt as a percentage of GDP, 1995-

20082008

GreeceGreece SpaiSpainn

FrancFrance e

ItalyItaly PortuPortugalgal

Public Public deficit/GDPdeficit/GDP

-0.065-0.065 --0.0220.022

-0.033-0.033 --0.0350.035

-0.041-0.041

Interest Interest paid/GDPpaid/GDP

0.0670.067 0.0300.030 0.0300.030 0.0660.066 0.0320.032

Net social wage Net social wage ratioratio

-0.063-0.063 --0.0340.034

-0.022-0.022 --0.0590.059

-0.024-0.024

(Public deficit – net (Public deficit – net tax on labor) / GDPtax on labor) / GDP

-0.128-0.128 --0.0560.056

-0.055-0.055 --0.0940.094

-0.065-0.065

Changes in the net social wage ratio = (nsw / gdp) and Changes in the net social wage ratio = (nsw / gdp) and in the wage share = (w / gdp)in the wage share = (w / gdp)

WageWage

shareshare = (w / = (w / gdp)gdp)

++ --

Net socialNet social

++ (a) (a) ++ ++ (b) (b) ++ --

wage ratewage rate

== (nsw / (nsw / gdp)gdp)

-- (c) (c) -- ++ (d) (d) -- --

net social wage ratio and wage share, Greece 1995-net social wage ratio and wage share, Greece 1995-20082008

net social wage ratio and wage share

-0,090

-0,070

-0,050

-0,030

-0,010

0,010

0,030

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

nsw

r**

0,550

0,570

0,590

0,610

0,630

0,650

0,670

ws

nswr** wage share

(b) + -

Public debt/GDP Greece 1960-Public debt/GDP Greece 1960-20102010