Greece's Tax Reforms and Fiscal Overperformance: A Catalyst for Long-Term Growth?

Greece’s economic trajectory since 2020 has been marked by a bold fiscal strategy aimed at reversing decades of stagnation. At the heart of this strategy lies a series of targeted tax reforms, designed to stimulate investment, reduce household burdens, and diversify the economy. With real GDP growth projected at 2.1% in 2025 and foreign direct investment (FDI) inflows surging to $5.4 billion by 2023, the question arises: Are these reforms a sustainable catalyst for long-term growth, or do structural challenges persist?

Strategic Tax Cuts and Fiscal Reforms

Greece’s tax reforms under the National Recovery and Resilience Plan (NRRP) have prioritized reducing the tax burden on households and businesses. Key measures include the permanent reduction of solidarity taxes and social security contributions, which were initially introduced during the pandemic [1]. These cuts, coupled with a 50% tax reduction for digital nomads under a new visa program, aim to attract remote workers and diversify the economy away from its tourism-dependent base [2]. The reforms also include a flat tax option for high-net-worth individuals and streamlined compliance processes, enhancing Greece’s appeal to foreign investors [1].

The fiscal strategy has been complemented by structural reforms, such as digitizing government services and cracking down on tax evasion. For instance, the introduction of a digital labor card has improved tax compliance and formalized employment, contributing to a decline in Greece’s unemployment rate to 8.6% in early 2025 [3].

Economic Outcomes and Investment Appeal

The results of these reforms are beginning to materialize. Greece’s GDP growth has outpaced the eurozone average, supported by EU Recovery and Resilience Funds and a surge in high-tech exports [4]. FDI inflows have more than doubled since 2020, with $7.6 billion recorded in 2022 alone, driven by projects in renewable energy, IT services, and logistics [5]. The Ellinikon urban regeneration project, a €8 billion initiative in Athens, exemplifies how strategic investments are attracting global capital [2].

However, the benefits of growth remain uneven. Real wages are still 30% below 2009 levels, and housing costs consume over 35% of disposable income—the highest in the EU [2]. This “decoupling” of growth from prosperity underscores the need for deeper structural reforms, particularly in addressing oligopolistic pricing and regional economic imbalances [2].

Comparative Insights: Lessons from Southern EU

Greece’s approach contrasts with mixed outcomes in similar economies. Portugal and Spain, for example, have implemented targeted tax cuts but have seen limited success in boosting productivity or attracting FDI. A 2020 study on the “twin deficits” hypothesis found that fiscal policy in Greece and Italy had a stronger impact on current account balances than in Portugal and Spain, suggesting that Greece’s reforms may be more directly linked to external economic stability [6].

Meanwhile, the OECD notes that Greece’s tax system ranked 27th in the 2024 International Tax Competitiveness Index, with an overall score of 60.9. While this reflects progress, high marginal tax rates and weak competition in key industries remain barriers to sustained growth [7].

Challenges and the Path Forward

Despite fiscal overperformance, Greece faces headwinds. Productivity levels remain 40% below the OECD average, and youth unemployment (18.9% in July 2025) highlights labor market gaps [4]. Structural issues, such as Athens’ dominance in economic activity and weak innovation in sectors like agritech and healthtech, require further investment [2].

The Digital Nomad Visa and Golden Visa programs offer a promising path to diversification, but their long-term success hinges on infrastructure upgrades and regulatory clarity. As noted by the IMF, Greece must balance fiscal consolidation with social safeguards to ensure inclusive growth [1].

Conclusion

Greece’s tax reforms have undeniably catalyzed short- to medium-term growth, with FDI and GDP metrics reflecting a more resilient economy. However, the challenge lies in translating this fiscal overperformance into broad-based prosperity. By addressing structural inefficiencies, fostering innovation, and ensuring equitable distribution of growth, Greece can transform its tax reforms from a temporary stimulus into a long-term growth engine. For investors, the country’s strategic incentives and improving fiscal health present opportunities—but caution is warranted until systemic bottlenecks are resolved.

Source:
[1] Greece: 2025 Article IV Consultation-Press Release, [https://www.elibrary.imf.org/downloadpdf/view/journals/002/2025/085/002.2025.issue-085-en.pdf]
[2] Decoupling Growth from Prosperity: Greece's Economic Paradox and the Path Forward, [https://econscope-by-the-agora-review.ghost.io/decoupling-growth-from-prosperity-greeces-economic-paradox-and-the-path-forward/]
[3] Economic forecast for Greece - Economy and Finance, [https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/greece/economic-forecast-greece_en]
[4] OECD Economic Surveys: Greece 2024, [https://www.oecd.org/en/publications/oecd-economic-surveys-greece-2024_a35a56b6-en.html]
[5] 2024 Investment Climate Statements: Greece, [https://www.state.gov/reports/2024-investment-climate-statements/greece]
[6] Twin Deficits: Evidence From Portugal, Italy, Spain and Greece, [https://www.intereconomics.eu/contents/year/2020/number/5/article/twin-deficits-evidence-from-portugal-italy-spain-and-greece.html]
[7] International Tax Competitiveness Index 2024, [https://taxfoundation.org/research/all/global/2024-international-tax-competitiveness-index/]