Graduate profile: Finance Ph.D. student's research on tax evasion in Greece gets worldwide attention
His doctorate is not quite yet in hand, but Nikolaos Artavanis of Athens, Greece, a finance student in the Pamplin College of Business, has already captured national and international attention and made an impact on policy with his research.
Artavanis, who will receive his Ph.D. later this month, co-authored a recent study on tax evasion in Greece that is currently among the top 10 papers on tax law in Social Science Research Network, considered the world’s premier open-access repository of scholarly research.
The study, which found that professionals were the biggest tax dodgers, also received extensive coverage by the media in the United States and abroad, including the New York Times, Wall Street Journal, Financial Times, Economist, Guardian, and International Herald Tribune.
Artavanis, a Greek national, has presented his paper at major conferences in his field. In his home country, he says, the study’s impact has been apparent in ongoing changes in tax legislation and tax compliance enforcement. “Shortly after the presentation of our paper in Athens last September, the Greek government decided to take measures to limit the tax evasion among self-employed professionals,” Artavanis said.
“More importantly, the extensive coverage of our study by the Greek media helped to raise public awareness regarding the significance of the problem and facilitated the acceptance of the forthcoming tax reform.”
Artavanis began studying topics related to the Greek financial crisis in 2009 with Adair Morse (University of Chicago and University of California, Berkeley) and Margarita Tsoutsoura (University of Chicago). The tax evasion project, the first of their several studies on the crisis, has been particularly successful, he said.
Using bank data, their study assessed the incidence and distribution of tax evasion across industries or occupations and examined the persistence of the phenomenon, “as a first step to implement solutions,” he said.
“Our results suggest that tax evasion was one of the main contributing factors to the current state of the Greek economy,” Artavanis said. “We conservatively estimate 28 billion euros (nearly $36 billion) in evaded taxable income for 2009, just for the self-employed. At a tax rate of 40 percent, the foregone tax revenues would account for about 30 percent of the Greek budget deficit shortfall that year.”
The study found that, on average, the true income of the self-employed is nearly twice this group’s reported income. Doctors, engineers, private tutors, financial services agents, accountants, and lawyers were the biggest tax evaders, with “the highest reported-to-true income multipliers.”
Artavanis notes three key findings: “Our evidence suggests that the problem is more pronounced in industries with weak paper trails, reveals inefficiencies in the enforcement mechanism, and documents the lack of political willpower to enact tax reform.”
For his dissertation, “A Treatise on Downside Risk,” Artavanis tackled another topic: an alternative approach for the estimation of investment risk that takes into account only unfavorable outcomes (or losses).
“Even though I evaluate the use of downside risk in asset pricing, the theoretical results can be applied in any field — engineering, biology, and medicine, for example — and, in general, in any case where unfavorable outcomes are more important than favorable ones in the determination of risk.”
His dissertation develops the theoretical background for the appropriate estimation method of systematic downside risk and “uses downside risk to explain a persistent market anomaly — the contrarian effect, or long-term stock return reversals.”
He hopes his research will contribute to both finance theory and practice. “It provides a measure of downside risk that is as easy to calculate as traditional risk but captures more effectively the notion of risk as people truly perceive it — risk that is more closely related to bad outcomes,” Artavanis said.
“This measure has superior explanatory power over the cross section of stock returns and provides a new perspective of risk that can explain phenomena that appear as anomalies, when risk is measured over both bad and good outcomes.”