## 1. Real GDP per Capita

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---

### A. Introduction
- Greece’s real GDP growth averaged at about 4.8 percent per year in 2021-24.
- Per capita real GDP measured in constant 2020 euros has exceeded its pre-pandemic level but is still below the level reached in 2007-08.
- Next Generational EU funds, at about 16 percent of 2023 GDP available in 2022–26, provide an opportunity to support investments and complementary human capital reforms.
- Working-age population projected to decline from about 6.6 million in 2023 to around 4.3 million by 2050 — a 35 percent reduction.
- Greece’s average actual working hours per worker: 39.8 hours (highest in the EU, European Commission, 2024a).
- Labor force participation (LFP) is low relative to euro area peers:
  - In 2023 Greek women’s LFP rate is lower by about 8 percentage points compared to euro area averages.
  - Greek men’s LFP is lower by 0.4 percentage point.
- Gender wage gap: the available unadjusted gender wage gap for Greece is for 2018 and is on par with the euro area average.
- Recent reforms and developments:
  - Increased gender parity in senior civil service positions (now well above EU-27 average).
  - Greek women make up about 60 percent of all serving judges (UN, 2024).
  - Introduction of child benefits, related tax allowances and deductions, more generous parental leaves including provisions for more symmetric sharing with fathers and extensions to the self-employed.
  - More facilities being built and converted for early childhood education units including with RRF support.
  - Community-based care programs aiming to formalize care work.

### B. Labor Market Analysis on Key Barriers
- Scope and data:
  - Working-age for LFS analysis defined as ages 25-54.
  - Data sources: ELSTAT, Haver Analytics, European Commission, Eurostat, Labor Force Survey, Child Penalty Atlas (Kleven and others, 2024), IMF staff calculations.
- Key findings on participation patterns:
  - Women’s LFP trails men over the entire life cycle, with a sizable gender gap surging at the beginning of the working-age period when couples typically start having children.
  - During prime working ages (25-54), Greek women’s LFP rate is about 10-20 percentage points lower than that of men.
  - Compared to other European countries, women’s LFP remains lower in Greece.
- Drivers of the gender gap:
  - Education:
    - For college graduates, the gender gap narrows sharply due to higher female participation.
    - Among non-college individuals, a wider gap emerges driven by lower female participation.
  - Children:
    - Having young children in the household—especially those under age six—drastically reduces women’s LFP.
  - Self-reported barriers from LFS (ages 25-54, 2024Q1):
    - Nearly 28 percent of working-age women cite care responsibilities as their main reason for staying out of the labor force, versus 1 percent for men.
    - About 25 percent cite “any other reasons”.
    - Education/training cited as a barrier by about 5 percent of working-age women; cited by over 95 percent of youth (ages 14-24) and 21 percent by working-aged men.
  - Unpaid work:
    - Greek women report spending, on average, 164 more minutes per day on unpaid work compared to men (Gu and others, 2024).
  - Child penalty:
    - Child Penalty Atlas estimates show a sharp decline in Greek women’s employment immediately after the first child’s birth, with persistent employment lag relative to two years before birth.
    - Men’s employment remains largely unaffected after the first child’s birth.
- Implications:
  - Low education levels and presence of young children are key drivers of Greece’s gender gap in LFP.
  - Policies are needed to expand educational opportunities and support families with pre-primary aged children to enable higher female LFP.

### C. Access to Childcare Facilities (introductory findings)
- Childcare coverage and access:
  - Figure 12 indicates children less than three years old out of formal childcare (Percent over the age group population, formal childcare, 2023).
  - Around 70 percent of young children are not enrolled in formal childcare in Greece, compared with about 58 percent across the euro area.
  - Regional shortfalls can be larger: places in day care centers in Northern Greece cover less than 7 percent of the total number of infants in the region (Megalonidou, 2019).
- Estimated potential impact:
  - Estimates suggest that addressing care responsibilities alone could boost employment by 3 percent.
- Policy directions signaled by analysis:
  - Expand access to childcare facilities.
  - Improve parental leave policies, including symmetry and coverage for self-employed.
  - Strengthen targeted tax-benefit incentives for second earners.
  - Address skill mismatches through enhanced private sector participation in education and training.
  - Complementary reforms to boost business dynamism and workplace flexibility.

### Childcare access and consequences (demand and supply)
- Demand outstrips supply for early childhood education and care (ECEC) services (Eurydice, 2025).
- Consequences:
  - Shortfalls exacerbate the employment penalty faced by parents—particularly women.
  - Policies to expand childcare should include building new facilities, incentivizing conversions and private sector provision, and supporting the use of childcare.
  - Conditional cash transfer design could help incentivize using childcare facilities.

### Work incentives in the tax-benefit system
- Tax wedge and METR implications:
  - Greece’s average tax wedge for a two-earner married couple with two children at average earnings is relatively high in Europe.
  - TaxFit microdata-based simulations:
    - For some low-income households (with wages below or at the average wage), shifting from one-earner to two-earners increases the marginal effective tax rate (METR) on this household by about 1 percentage point.
    - Example: in a one-earner household with 100 percent of the average wage, if a second earner works at 60 percent of the average wage, each 100 euro earned will be taxed by 1 euro more.
    - For a higher-income household with two-earners with average earning above the average wage, the marginal rate is estimated to decrease by about 1 percentage point.
- Policy implication:
  - Support measures can be more targeted to low-income households to be effective with lower fiscal cost.

### Unemployment benefit system and labor market activation
- Re-profiling benefits:
  - Re-profile benefits to be higher at the beginning but have a steeper decline over time to better incentivize job search without compromising overall financial support.
  - Consider stronger requirements for using employment services, skill training, and rules on accepting job offers (European Commission, 2023; OECD, 2024b).
  - Coordinate reforms with strengthening the labor market integration function of the means-test Guaranteed Minimum Income (GMI) program.

### Parental leave, fathers, and the self-employed
- Current parental leave provisions:
  - Greece provides 56 weeks of paid maternity leave (17 weeks of basic leave and an additional special leave of 9 months), one of the longest in the EU and OECD.
  - This duration exceeds the threshold of around 30 weeks identified by Del Rey and others (2021), beyond which female LFP tends to decline.
  - Fathers are granted 14 working days of paid leave at 100 percent of their earnings, paid by the employer.
  - Each parent is granted four months of leave per child, of which the first two months are paid at minimum wage.
- Design improvements suggested:
  - Make paternity leave non-transferrable or impose a take-or-lose requirement to increase take-up.
- Self-employed coverage:
  - Self-employed women are entitled to four monthly maternity payments of between €150 and €200 (less than 25 percent of the national minimum wage).
  - No other parental leave rights are available for self-employed parents.
  - Greece has the highest share of self-employed in total employment among OECD countries, with nearly one out of three women self-employed (OECD, 2022).
  - Greece has a relatively high share of self-employed individuals at risk of poverty (Eurostat, 2024b).
  - Recent reforms have extended more leaves to the self-employed.

### Skill mismatch and education quality
- Tertiary-educated unemployment:
  - Greece’s tertiary-educated unemployment rate stands at 8.5 percent—more than double the euro area average of 3.8 percent.
  - College-educated women in Greece face a 10 percent unemployment rate, compared to 6.4 percent for men.
  - Euro area averages: 4.1 percent for women and 3.5 percent for men.
- Education quality and alignment:
  - Recent test scores at the secondary level show significant recent declines.
  - Cross-country data suggest a high mismatch in fields of study relative to current job demand.
- Recommended reforms:
  - Rationalize public education allocations and policy incentives to better align education with evolving skill needs (e.g., AI, engineering, nursing).
  - Strengthen high-return pre-primary and vocational education.
  - Leverage private universities and industry participation to respond more quickly to skill demand.
  - Coordinate employment services and active labor market policy measures with training provision.
  - Implement robust monitoring and evaluation of ongoing reform efforts.

### Targeted support simulations, GMI, and CCTs
- TaxFit model simulations examined two measures:
  - (i) Childcare-linked cash transfer: €100/month per child.
  - (ii) Nonrefundable tax credit/allowance: €100/taxpayer per year aimed to mitigate the estimated increase in METR for low-income households.
- Fiscal results from simulations:
  - With good targeting to the lowest two income quintiles, the estimated total fiscal cost for both measures is less than 0.1 percent of GDP.
  - Model-estimated revenue gain is due to incentives to work more, particularly from the tax credits for second earners in low-income households.
- Guaranteed Minimum Income (GMI, Ελάχιστο Εγγυημένο Εισόδημα):
  - GMI is a means-tested program with three key components: minimum income support, essential social service provision, and labor market integration.
  - Recent digitalization efforts with RRF support have integrated information management into a common platform connected to employment registration, facilitating quick eligibility screening.
  - GMI is characterized as targeted but with low coverage; its cost is estimated at about 1 percent of GDP in 2024.
  - The social service and labor component can be integrated with skill training and childcare support.
- Conditional Cash Transfers (CCTs):
  - CCTs could sharpen targeted support and strengthen incentives by conditioning benefits on actions (e.g., sending child to childcare, completing education or job training).
  - Evidence and domestic experience suggest well-designed CCTs can improve childcare use, women’s employment, and vocational training outcomes.

### Complementary reforms, business dynamism, and cultural norms
- Labor demand and business dynamism:
  - Vacancies-to-unemployment ratio in Greece stands at 0.2 in 2024Q3—equal to five jobseekers per vacancy—indicating severe labor market slack.
  - Greece has the highest service-sector barriers-to-entry in the Eurozone (index, 2023), constraining job creation in sectors where women are concentrated.
  - More flexible work arrangements can help women adapt to family needs and reduce informality.
  - Further reforms to raise labor productivity include enhancing competition, fostering innovation and technology diffusion, reducing red tape, increasing judicial efficiency, and regional efforts to strengthen the European single market.
- Cultural and social norms:
  - World Values Survey (2022): over 37 percent of Greek respondents agreed or strongly agreed that men should have more right to a job than women when jobs are scarce.
  - Comparative figures: Italy 25.4 percent, Portugal 17.8 percent, France 11.5 percent, Spain 10.8 percent.
  - Political representation and private sector leadership:
    - Only 23 percent of seats in the national parliament were held by women in 2023, below the EU-average of 33 percent.
    - Greek women represented 24 percent of senior management positions in 2022, below the EU average.
  - These cultural factors likely contribute to low female LFP, but policy reforms can change incentives over time.

### Estimated employment gains from addressing care impediments
- Arithmetic estimate from LFS-based exercise:
  - Addressing care impediments alone could boost Greek employment by an estimated 3 percent.
  - Method: add baseline employment and additional men and women who cite care responsibilities as primary reason for not working, then discount by age- and gender-specific unemployment rates to obtain net increase.
  - Higher benefits are possible with more comprehensive reforms; literature example: raising women’s LFP rate by 7 percentage points in Japan could raise per capita income by about 4 percent (Steinberg and Nakane, 2016).

### Key policy priorities and conclusion
- Top priorities to raise LFP, particularly for women:
  - Targeted measures to reduce care burdens:
    - Expand childcare supply, vouchers/transfers, incentivize use.
  - Improve parental leave design:
    - Stronger paternity leave take-up and better coverage for the self-employed.
  - Raise work incentives in the tax-benefit system:
    - Targeted tax credits for second earners and better unemployment benefit design (higher initial benefits with steeper decline, stronger activation measures).
  - Complement with demand-side reforms:
    - Enhance business dynamism, reduce barriers to entry in services, foster flexible work arrangements, and align education and training with skill demand.
- A balanced mix of supply- and demand-side policies is vital to increasing LFP and boosting medium-term growth.

*Source: IMF staff analysis and figures as presented in the content unit.*

### 1. Real GDP per Capita ___________________________________________________________________ 5

### 1. Real GDP per Capita

### A. Introduction
- Greece’s real GDP growth averaged at about 4.8 percent per year in 2021-24.
- Per capita real GDP measured in constant 2020 euros has exceeded its pre-pandemic level but is still below the level reached in 2007-08.
- Next Generational EU funds, at about 16 percent of 2023 GDP available in 2022–26, provide an opportunity to support investments and complementary human capital reforms.
- Working-age population projected to decline from about 6.6 million in 2023 to around 4.3 million by 2050 — a 35 percent reduction.
- Greece’s average actual working hours per worker: 39.8 hours (highest in the EU, European Commission, 2024a).
- Labor force participation (LFP) is low relative to euro area peers; in 2023 Greek women’s LFP rate is lower by about 8 percentage points compared to euro area averages, while Greek men’s LFP is lower by 0.4 percentage point.
- Gender wage gap in Greece is on par with euro area average; available unadjusted gender wage gap for Greece is for 2018.
- Recent reforms noted:
  - Increased gender parity in senior civil service positions (now well above EU-27 average).
  - Greek women make up about 60 percent of all serving judges (UN, 2024).
  - Introduction of child benefits, related tax allowances and deductions, more generous parental leaves including provisions for more symmetric sharing with fathers and extensions to the self-employed.
  - More facilities being built and converted for early childhood education units including with RRF support.
  - Community-based care programs aiming to formalize care work.

### B. Labor Market Analysis on Key Barriers
- Scope and data:
  - Working-age for LFS analysis defined as ages 25-54.
  - Data sources: ELSTAT, Haver Analytics, European Commission, Eurostat, Labor Force Survey, Child Penalty Atlas (Kleven and others, 2024), IMF staff calculations.
- Key findings on participation patterns:
  - Women’s LFP trails men over the entire life cycle, with a sizable gender gap surging at the beginning of the working-age period when couples typically start having children.
  - During prime working ages (25-54), Greek women’s LFP rate is about 10-20 percentage points lower than that of men.
  - Compared to other European countries, women’s LFP remains lower in Greece.
- Drivers of the gender gap:
  - Education:
    - For college graduates, the gender gap narrows sharply due to higher female participation.
    - Among non-college individuals, a wider gap emerges driven by lower female participation.
  - Children:
    - Having young children in the household—especially those under age six—drastically reduces women’s LFP.
  - Self-reported barriers from LFS (ages 25-54, 2024Q1):
    - Nearly 28 percent of working-age women cite care responsibilities as their main reason for staying out of the labor force, versus 1 percent for men.
    - About 25 percent cite “any other reasons” (interpreted as likely related to weak work incentives, skill mismatches, or other structural hurdles).
    - Education/training cited as a barrier by about 5 percent of working-age women; cited by over 95 percent of youth (ages 14-24) and 21 percent by working-aged men.
  - Unpaid work:
    - Greek women report spending, on average, 164 more minutes per day on unpaid work compared to men (Gu and others, 2024).
  - Child penalty:
    - Child Penalty Atlas estimates show a sharp decline in Greek women’s employment immediately after the first child’s birth, with persistent employment lag relative to two years before birth (Figure 11).
    - Men’s employment remains largely unaffected after the first child’s birth.
- Implications:
  - Low education levels and presence of young children are key drivers of Greece’s gender gap in LFP.
  - Policies are needed to expand educational opportunities and support families with pre-primary aged children to enable higher female LFP.

### C. Access to Childcare Facilities (introductory findings)
- Childcare coverage:
  - Figure 12 indicates children less than three years old out of formal childcare (Percent over the age group population, formal childcare, 2023).
- Estimated potential impact:
  - Estimates suggest that addressing care responsibilities alone could boost employment by 3 percent.
- Policy directions signaled by analysis:
  - Expand access to childcare facilities.
  - Improve parental leave policies, including symmetry and coverage for self-employed.
  - Strengthen targeted tax-benefit incentives for second earners.
  - Address skill mismatches through enhanced private sector participation in education and training.
  - Complementary reforms to boost business dynamism and workplace flexibility.

*Source: IMF staff analysis and figures as presented in the content unit.*

### 9. Over 70 percent of Greek children under three are outside of formal programs, well

### 9. Over 70 percent of Greek children under three are outside of formal programs, well above the euro area average, pointing to challenges in accessing childcare facilities

### Childcare access and consequences
- Around 70 percent of young children are not enrolled in formal childcare in Greece, compared with about 58 percent across the euro area.
- Demand outstrips supply for early childhood education and care (ECEC) services (Eurydice, 2025).
- Regional shortfalls can be larger: places in day care centers in Northern Greece cover less than 7 percent of the total number of infants in the region (Megalonidou, 2019).
- Consequences:
  - Shortfalls exacerbate the employment penalty faced by parents—particularly women.
  - Underscores importance of expanding childcare facilities through building new ones, incentivizing conversions and private sector provision, and supporting the use of childcare.
  - Conditional cash transfer design could help incentivize using childcare facilities.

### Work incentives in the tax-benefit system
- Greece’s average tax wedge for a two-earner married couple with two children at average earnings is relatively high in Europe.
- TaxFit microdata-based simulations:
  - For some low-income households (with wages below or at the average wage), shifting from one-earner to two-earners increases the marginal effective tax rate (METR) on this household by about 1 percentage point.
  - Example: in a one-earner household with 100 percent of the average wage, if a second earner works at 60 percent of the average wage, each 100 euro earned will be taxed by 1 euro more.
  - For a higher-income household with two-earners with average earning above the average wage, the marginal rate is estimated to decrease by about 1 percentage point.
- Policy implication: support measures can be more targeted to low-income households to be effective with lower fiscal cost.

### Unemployment benefit system and labor market activation
- Scope to sharpen incentives:
  - Re-profile benefits to be higher at the beginning but have a steeper decline over time to better incentivize job search without compromising overall financial support.
  - Consider stronger requirements for using employment services, skill training, and rules on accepting job offers (European Commission, 2023; OECD, 2024b).
  - Coordinate reforms with strengthening the labor market integration function of the means-test Guaranteed Minimum Income (GMI) program.

### Parental leave, fathers, and the self-employed
- Current parental leave provisions:
  - Greece provides 56 weeks of paid maternity leave (17 weeks of basic leave and an additional special leave of 9 months), one of the longest in the EU and OECD.
  - This duration exceeds the threshold of around 30 weeks identified by Del Rey and others (2021), beyond which female labor force participation (LFP) tends to decline.
  - Fathers are granted 14 working days of paid leave at 100 percent of their earnings, paid by the employer.
  - Each parent is granted four months of leave per child, of which the first two months are paid at minimum wage.
- Design improvements suggested:
  - Make paternity leave non-transferrable or impose a take-or-lose requirement to increase take-up, following Scandinavian practices.
- Self-employed coverage:
  - Self-employed women are entitled to four monthly maternity payments of between €150 and €200 (less than 25 percent of the national minimum wage).
  - No other parental leave rights are available for self-employed parents.
  - Greece has the highest share of self-employed in total employment among OECD countries, with nearly one out of three women self-employed (OECD, 2022).
  - Greece has a relatively high share of self-employed individuals at risk of poverty (Eurostat, 2024b).
  - Recent reforms have extended more leaves to the self-employed.

### Skill mismatch and education quality
- Tertiary-educated unemployment:
  - Greece’s tertiary-educated unemployment rate stands at 8.5 percent—more than double the euro area average of 3.8 percent.
  - College-educated women in Greece face a 10 percent unemployment rate, compared to 6.4 percent for men.
  - Euro area averages: 4.1 percent for women and 3.5 percent for men.
- Education quality and alignment:
  - Recent test scores at the secondary level show significant recent declines.
  - Cross-country data suggest a high mismatch in fields of study relative to current job demand.
  - Recommended reforms:
    - Rationalize public education allocations and policy incentives to better align education with evolving skill needs (e.g., AI, engineering, nursing).
    - Strengthen high-return pre-primary and vocational education.
    - Leverage private universities and industry participation to respond more quickly to skill demand.
    - Coordinate employment services and active labor market policy measures with training provision.
    - Implement robust monitoring and evaluation of ongoing reform efforts.

### Targeted support simulations, GMI, and CCTs
- TaxFit micro-simulations examined two measures:
  - (i) Childcare-linked cash transfer: €100/month per child.
  - (ii) Nonrefundable tax credit/allowance: €100/taxpayer per year aimed to mitigate the estimated increase in METR for low-income households.
- Fiscal results from simulations:
  - With good targeting to the lowest two income quintiles, the estimated total fiscal cost for both measures is less than 0.1 percent of GDP.
  - Model-estimated revenue gain is due to incentives to work more, particularly from the tax credits for second earners in low-income households.
- Guaranteed Minimum Income (GMI, Ελάχιστο Εγγυημένο Εισόδημα):
  - GMI is a means-tested program with three key components: minimum income support, essential social service provision, and labor market integration.
  - Recent digitalization efforts with RRF support have integrated information management into a common platform connected to employment registration, facilitating quick eligibility screening.
  - GMI is characterized as targeted but with low coverage; its cost is estimated at about 1 percent of GDP in 2024.
  - The social service and labor component can be integrated with skill training and childcare support.
- Conditional Cash Transfers (CCTs):
  - CCTs could sharpen targeted support and strengthen incentives by conditioning benefits on actions (e.g., sending child to childcare, completing education or job training).
  - Evidence and domestic experience suggest well-designed CCTs can improve childcare use, women’s employment, and vocational training outcomes.

### Complementary reforms, business dynamism, and cultural norms
- Labor demand and business dynamism:
  - Vacancies-to-unemployment ratio in Greece stands at 0.2 in 2024Q3—equal to five jobseekers per vacancy—indicating severe labor market slack.
  - Greece has the highest service-sector barriers-to-entry in the Eurozone (index, 2023), constraining job creation in sectors where women are concentrated.
  - More flexible work arrangements can help women adapt to family needs and reduce informality.
  - Further reforms to raise labor productivity include enhancing competition, fostering innovation and technology diffusion, reducing red tape, increasing judicial efficiency, and regional efforts to strengthen the European single market.
- Cultural and social norms:
  - Survey data (World Values Survey, 2022): over 37 percent of Greek respondents agreed or strongly agreed that men should have more right to a job than women when jobs are scarce.
  - Comparative figures: Italy 25.4 percent, Portugal 17.8 percent, France 11.5 percent, Spain 10.8 percent.
  - Political representation and private sector leadership:
    - Only 23 percent of seats in the national parliament were held by women in 2023, below the EU-average of 33 percent.
    - Greek women represented 24 percent of senior management positions in 2022, below the EU average.
  - These cultural factors likely contribute to low female LFP, but policy reforms can change incentives over time.

### Estimated employment gains from addressing care impediments
- Arithmetic estimate from LFS-based exercise:
  - Addressing care impediments alone could boost Greek employment by an estimated 3 percent.
  - Method: add baseline employment and additional men and women who cite care responsibilities as primary reason for not working, then discount by age- and gender-specific unemployment rates to obtain net increase.
  - Higher benefits are possible with more comprehensive reforms; example from literature: raising women’s LFP rate by 7 percentage points in Japan could raise per capita income by about 4 percent (Steinberg and Nakane, 2016).

### Key policy priorities and conclusion
- Top priorities to raise LFP, particularly for women:
  - Targeted measures to reduce care burdens (expand childcare supply, vouchers/transfers, incentivize use).
  - Improve parental leave design (including stronger paternity leave take-up and better coverage for the self-employed).
  - Raise work incentives in the tax-benefit system with targeted tax credits for second earners and better unemployment benefit design.
  - Complement with demand-side reforms: enhance business dynamism, reduce barriers to entry in services, foster flexible work arrangements, and align education and training with skill demand.
- A balanced mix of supply- and demand-side policies is vital to increasing LFP and boosting medium-term growth.

*International Monetary Fund, Chapter 9 summary*

### 24. In addition, addressing skill mismatches remains crucial to support a productive and

### 24. In addition, addressing skill mismatches remains crucial to support a productive and competitive Greece labor force

### Skills, education, and labor market alignment
- Modernize secondary and tertiary education to align with labor market needs.
- Further expand life-long learning.
- Scale up vocational and technical training in technology and healthcare to meet emerging demand.
- Ensure sustained implementation, establish monitoring mechanisms to evaluate effectiveness, and coordinate education and labor programs across overlapping ministries.
- Address gender dimensions: maintain labor market flexibility that can better accommodate women and prioritize reforms in sectors with the largest distortions, such as non-tradable services with a high share of women workers.

### Business dynamism, regulation, and firm support
- Streamline regulations to remove barriers for new and growing firms.
- Broaden regulatory impact assessments to enhance efficiency, innovation, and competition.
- Prioritize reforms in sectors with large distortions (notably non-tradable services).
- Support small and young firms to grow.
- Further improve the judiciary system to facilitate efficient resource allocation and stimulate business and job creation.

### IMF TaxFit model (Appendix I summary)
- TaxFit is a cross-country tax and benefit simulator combining country-specific household survey microdata and country-specific tax and benefit rules (Cots-Capel, Davis, MacDonald, 2024).
- Computes taxes and benefits for hypothetical households defined by user-provided inputs on gross income levels and family structures.
- Generates indicators including the effective tax rate (ETR) and the marginal effective tax rate (METR).
- When microdata are available, TaxFit can produce diagnostic indicators such as the Kakwani index of progressivity and can model reform scenarios to estimate welfare and fiscal impacts; data can also be used for gender and fiscal policy analyses.

### Firm-level evidence of resource misallocation and productivity
- Context and broad findings:
  - Total factor productivity (TFP) in Greece declined since the European Debt Crisis in 2010 and remained about 10 percent lower than in 2009.
  - By contrast, TFP in the euro area grew by 9.7 percent during the same period.
  - Resource misallocation is identified as a key driver of stagnant productivity growth.
- Reforms and firm entry:
  - Reforms since 2011 and 2019 targeted product market competition, reducing red tape, opening “closed professions,” amending investment licensing laws, codifying business regulation frameworks, introducing an online one-stop shop for company registration, and adding risk-proportionality requirements for licenses and permits.
  - New firm entry in 2023 has increased by 33 percent compared to pre-pandemic levels, though the firm entry rate remains below the median of the euro area.
- Data coverage and limitations:
  - Firm-level data sourced from Orbis cover market economy sectors under NACE Rev. 2 (excluding financial sector) accounting for 56 percent of GDP.
  - After cleaning, the sample includes 58,000 unique firms.
  - Sample covers about one-third of total employment and around 80 percent of total firm revenue relative to national aggregates; coverage is consistent over time.
  - The Orbis sample omits most micro firms: more than half of employment in Greece is provided by micro firms with less than ten employees; the sample covers most medium and large firms (more than 49 employees) but omits many micro firms.
  - At the 2020 vintage: the sample covers about one-third of small-firm employment (10–49 employees) and three-fourths of small-firm revenue; the omission of micro firms likely underestimates the degree of resource misallocation, which is more concentrated in smaller firms.
- Dispersion and sectoral patterns:
  - Dispersion in marginal revenue product of capital (MRPK) and marginal revenue product of labor (MRPL) increased rapidly between 2009 and 2012 and remained elevated through 2020.
  - The increase in dispersion is much more pronounced among smaller firms; larger firms’ dispersion peaked in 2013.
  - Sectoral concentrations of inefficiency:
    - Construction experienced the largest MRPK dispersion before the pandemic.
    - Food and accommodation experienced the largest MRPL dispersion.
    - Non-tradable service sectors (construction, professional services, food and accommodation) show pronounced declines in the correlation between firm-level TFP and productive factors, indicating resources are not flowing to more productive firms.
    - For professional services the correlation between TFP and capital is negative; for construction and food and accommodation the correlation moved from positive to negative over the sample.
    - Tradable sectors generally exhibit more efficient resource allocations, with positive correlations between TFP and labor and capital.
- Drivers and interpretation:
  - Product market rigidities produce output price differentials across firms producing similar goods.
  - Labor and capital market rigidities produce varying costs of capital and wages across firms; size-dependent borrowing frictions and regulatory scrutiny deter expansion of more productive smaller firms.
  - Decomposition following Gopinath et al. (2017) indicates secular declines in the correlation between firm TFP and productive factors since 2009, driving increased MRP dispersion.

### Policy implications and priorities
- Accelerate regulatory reforms to foster competition and business dynamism to improve productivity.
- Target reforms at non-tradable services where misallocation is most acute.
- Reduce size-dependent barriers (borrowing constraints, regulatory burdens) that hinder expansion of productive small firms.
- Strengthen education and training policies (secondary, tertiary, lifelong learning, vocational/technical training in technology and healthcare) and ensure inter-ministerial coordination and monitoring to align skills supply with labor demand.
- Improve judiciary efficiency and continue measures to support small and young firms to enhance resource reallocation and productivity growth.

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1grcea2025002-print-pdf.pdf*

### 9. Resource misallocation has been costly for the Greek economy, amounting to about 3

### Resource misallocation has been costly for the Greek economy

### Key findings on misallocation and productivity
- Resource misallocation cost Greece about "3 percent market-economy-sector GDP per year between 2009 and 2020."
- These costs are measured as missed opportunities under a counterfactual where the degree of resource misallocation remained constant over the sample, using the Klenow and Hsieh (2009) framework (technical details in Appendix I).
- Actual TFP growth was "close to zero from 2009 to 2020", while the log of efficient TFP "would have grown by 30 percent during the period."
- The main contributors to the divergence between actual and efficient TFP are non-tradable service sectors: "construction, professional services, and food and accommodation services."
- Sector- and firm-level patterns reported:
  - Young firms account for "about two-thirds of cumulative resource misallocation before the pandemic."
  - In most sectors, the median TFP of firms under five years of age is "10 to 20 percent higher than that of firms older than 15 years."
  - Slow growth of young firms is partly attributed to scarcity of bank credit; however, credit expansion does not necessarily reduce misallocation (Spain example from Gopinath et al., 2017).

### Quantitative and methodological notes (from Appendix I)
- Framework: adapted from Klenow and Hsieh (2009), with monopolistic competition in each sector and CES aggregation across differentiated products.
- Parameter calibration: "σ = 3", consistent with Klenow and Hsieh (2009), Gopinath et al. (2017) and IMF (2024).
- Production specification: Cobb-Douglas with capital and other variable costs (data limitations led to using capital and other variable costs rather than capital and labor).
- Definitions and constructs:
  - Revenue-based total factor productivity (TFPR) is defined following Hsieh and Klenow (2009) (equation form preserved in Appendix I).
  - Efficient TFP is the sectoral TFP under no distortions (see Appendix I equations).
  - The aggregate ratio of actual output over efficient output and its log serve as measures of allocation efficiency over time (Appendix I, equation (12)).

### Observed institutional and structural constraints
- Regulatory environment:
  - Between 1980 and 2010 Greece "generated more than five thousand new regulations each year" (OECD, 2011).
  - The number of new laws in Greece "ranked the highest among OECD countries during the period from 1997 to 2009" (Pissarides et al., 2023).
  - Overregulation is linked to large small-business employment and a sizable informal economy (Cui and Yao, 2024).
- Judicial and distressed-debt context:
  - The Hercules program reduced the NPL ratio "from 40 percent in 2019 to 3 percent in 2024" (EBA, 2024).
  - The transfer of NPLs implied distressed debt in the hands of credit servicers "amounted to around 70bn at end–2024, accounting for 30 around percent of GDP" (BoG, 2024).
  - Implementation of the new insolvency framework (operational since late 2021) has been hindered by lengthy court proceedings, affecting distressed debt resolution and likely private investment and productivity.

### Policy recommendations (national)
- Accelerate regulatory reform, with emphasis on non-tradable service sectors:
  - Conduct a systemic ex-post evaluation of legacy regulations.
  - Prioritize resources toward sectors with the most significant regulatory distortions (notably non-tradable services).
  - Include opt-out provisions for certain laws to provide clarity and expedite reform.
  - Avoid firm size-based tax and regulatory incentives.
  - Narrowly target tax incentives at firms’ research and development (R&D) investments to support young, innovative firms.
  - Further reduce remaining barriers to entry in service sectors.
- Broaden regulatory impact assessment:
  - Place stronger emphasis on the impact on efficiency (regulations can impose unnecessary costs or unintended impacts on innovation and competition).
  - Require assessments to consider alternatives to regulations, including a ‘do-nothing’ option.
  - Assess potential competition effects from subordinate regulations as well as primary laws.
- Labor market reforms to support firm growth and labor supply:
  - Address low labor force participation, particularly among youth, women and the elderly.
  - Provide targeted support for childcare and elderly care to enable women to work outside the home.
  - "Reducing the high tax wedge and phasing out the unemployment benefits within the eligibility period can incentivizing job search."
- Capital market and judicial reforms to facilitate reallocation:
  - Continue sustained efforts to reduce non-performing loans to lower costs of bank lending to small firms.
  - Accelerate judicial system reforms so unresolved bad assets do not lock resources in distressed firms, and so funding can be channeled to more productive firms.

### Policy recommendations (European / integration)
- At the European level, remove barriers within the single market and invest in infrastructure to strengthen economic integration and efficiency.

### Institutional reform underway (judicial reform highlights)
- Judicial reform objectives and actions launched in 2024:
  - Court reorganization (new judicial map in civil and criminal justice) to balance case distribution and speed administration of justice.
  - Digitalization upgrades, including information systems and video conferencing.
  - Recruitment of additional judges and judicial clerks.
  - Shifting certain non-contentious tasks from judges to lawyers (e.g., mortgage pre-notations, sworn statements, acts relating to inheritance) to decongest civil courts.
  - Main target: bring the length of court proceedings (disposition time) "to the average EU level by 2027."

*Source: IMF staff estimates and Appendix I from the provided content.*

### 5. There is a limited level of specialization in civil courts in Greece. The major courts have

### 5. There is a limited level of specialization in civil courts in Greece. The major courts have

### Specialization of judges and rotation rules
- Three first instance courts (Athens, Piraeus and Thessaloniki) have established specialized benches in areas like debt enforcement, insolvency law, tort, family law, succession law and intellectual property.
- Major courts of appeal also show low specialization (split between civil and criminal law, specialized benches in some civil areas).
- The Greek court system does not allow a judge to specialize in insolvency—or commercial matters more broadly—on a permanent basis: judges must rotate every four years.
- Consequence: judges cannot build long-term subject matter expertise; after four years an outgoing insolvency judge could end up working in very different areas such as family law, and incoming judges may come from unrelated subjects.
- Insolvency trainings for judges are held once or twice a year.
- Currently, 29 judges have a specialized role related to insolvency.

### Court management, fragmentation, and data systems
- There is no central management of the court system; courts are operated as individual entities rather than as part of a broader network.
- Resulting issues: fragmentation, little flexibility in assigning and reallocating resources, court-specific data systems that do not cover the entire system, and difficulty overseeing the system as a whole and implementing effective case management.
- Recent efforts to improve management at the level of first instance courts are noted as welcome.

### Insolvency professionals regime (as of 2025)
- A new regime for the regulation of insolvency professionals was introduced in 2025.
- Prior to that, there was no professionally organized cohort of insolvency professionals, negatively impacting application of the insolvency framework.
- As of January 2025, there are 192 registered insolvency professionals.
- Insolvency professionals are licensed after undertaking exams organized by the Insolvency Management Committee (established in 2021 and operating under the supervision of the Ministry of Economy and Finance).
- Disciplinary sanctions range from a written reprimand, financial fine, temporary ban on assuming duties to a temporary withdrawal of license and removal from the registry.

### Judicial efficiency: performance metrics and recent history
- Key metrics: clearance rate and disposition time (estimated minimum time needed to resolve a case under current working conditions).
- Greece has one of the lowest judicial system efficiency measures in the EU, with only modest recent improvement.
- Clearance rate for civil and commercial cases in Greece has been well below 100 percent for both 1st and 2nd instance courts for almost the whole reporting period.
- During the Global Financial Crisis (GFC) and the European Debt Crisis (EDC) the clearance rate dropped below 60 percent, creating a massive backlog and increasing disposition time.
- Combining 1st and 2nd instance courts, it takes almost 1,200 days in Greece to reach a decision for civil and commercial cases.
- EU average disposition time: 446 days.
- Greece records the longest proceedings for 1st instance courts in the EU.

### Drivers of judicial efficiency — conceptual framework
- Framework treats judicial system as a market where demand for justice (incoming cases) meets supply of justice (cases resolved).
- Demand drivers: business cycle fluctuations, quantity and quality of law, costs and rules governing court proceedings, alternative dispute resolution mechanisms, social norms.
- Supply drivers: financial and human resources, efficiency of judicial production process, incentive structures, governance of courts.
- Market clears through adjustments in length of proceedings; inability to satisfy demand generates congestion and delays.

### Demand-side factors affecting Greece
- Massive increase in demand during the GFC and the EDC generated system congestion.
- Incoming cases have recently slowed and are below the EU average, but crisis shocks were of exceptional magnitude in Greece.
- Crisis led to significant business and personal insolvencies:
  - Cumulative loss of around 30 percent of GDP over the 5-year period (crisis period).
  - Corporate defaults spiked in 2011 and started to decline only in 2014.
  - Unemployment rate remained elevated until 2020.
- Court fees are generally on the low side compared to other EU countries.
- Legal aid eligibility: beneficiary can be a person whose capital annual income does not exceed the two-thirds of the lowest annual salaries, with courts retaining discretion to determine the amount of legal aid.
- Alternative dispute resolution availability was relatively low during the crisis period; Greece adopted a modern system since 2019, contributing to a declining litigation trend.

### Supply-side factors affecting Greece
- Supply of judiciary services (resolved cases) has trended downward since the crisis period; Greece is below the EU average and has not responded adequately to elevated demand.
- Human and financial resource issues:
  - Greece has a very high number of judges per capita compared to the EU average, with one of the highest increases in the EU between 2012 and 2022, exceeding 60 percent.
  - Support from non-judge staff has been very limited, leading to judges being overburdened with administrative and non-core tasks and reducing efficiency.
  - Evidence cited indicates no strong cross-country relationship that more judges automatically raises resolution rates; poor support staff and productivity concerns are emphasized.
- Digitalization:
  - Greece lags EU peers in digital-ready procedural rules, tools and infrastructure for remote communication, secure electronic communication between courts and legal professionals, and various digital tools for judges and staff.
  - Low digitalization contributes to longer pre-trial activities and court proceedings; strong evidence links digitalization to efficiency improvements in EU and OECD studies.
- Incentive structures and monitoring:
  - Monitoring systems track backlogs and counts of incoming, resolved, and pending cases, but other elements (disposition time, clearance rate, appeal rate) are not actively monitored.
  - Evidence suggests stronger monitoring and incentives can increase judge output and overall efficiency.

### Impact on debt enforcement and insolvency proceedings
- Debt enforcement is significantly impacted by court shortcomings and rigidities in the Code of Civil Procedure.
  - Creditors can face several years to obtain a court order; multiple avenues exist for debtors to challenge and delay enforcement.
  - Delays occur in hearings of legal challenges against enforcement proceedings/auctions; hearings are often set for distant dates.
- Measures underway:
  - Newly revised Code of Civil Procedure (to be adopted in June 2025) aims to create simpler and more effective rules, limit room for postponement of hearings.
  - Staffing of additional judges (30 previously magistrate judges) on debt enforcement proceedings to clear backlog is currently underway.
- Corporate insolvency proceedings are particularly affected:
  - Long delays between submission of an insolvency petition and opening of a case are detrimental to rescue prospects.
  - Slow pace and heavy bureaucracy dissuade businesses from using the insolvency framework.
  - Corporate insolvencies require complex financial and legal expertise; lack of expertise in courts is a challenge.
- Bankruptcy procedures are less affected but delays can occur at hearings of legal challenges against auctions or creditor classification lists due to many petitions by debtors.

### Impact of judicial efficiency on economic performance — channels and evidence
- Key transmission channels: investment, productivity, and credit markets.
  - Contract enforcement reduces business and policy uncertainty and increases expected returns, supporting investment.
  - Judicial efficiency affects productivity via business dynamism, firm size, and innovation.
  - Credit markets respond to contract enforcement through loan size, maturity, and spreads.
- Greece-specific concerns: smaller firm sizes, low private sector investments, low firm exit rates, deteriorating allocation efficiencies since the EDC.
- International and empirical evidence:
  - Better contract enforcement linked to more efficient capital allocation and higher foreign direct investment.
  - Judicial efficiency improves firm productivity in relationship-specific investment sectors and affects firm entry and exit dynamics.
  - Better contract enforcement induces credit suppliers to increase loan size, lengthen loan maturity, and reduce loan spreads.
  - Portugal is presented as a potential example of successful judicial reforms (2006 territorial jurisdiction change; 2011–2013 reforms) with disposition time in first instance courts declining from around 400 days in 2013 to around 200 days in 2019 and significant clearance rate improvements; evidence suggests positive impact on investment and productivity.

*International Monetary Fund. Content unit extracted from the referenced chapter.*

### 25. Slovakia’s judicial reforms can help shed some light on their economic impact too.

### 25. Slovakia’s judicial reforms can help shed some light on their economic impact too.

### Judicial reforms in Slovakia and measured outcomes
- Reform period: 2012–16.
- Main measures:
  - Establishment of a new court dealing with enforcement to reduce caseload at district and regional courts.
  - Adoption of two new codes for the civil law and procedure.
- Measured judicial performance changes after reforms:
  - Disposition time in first instance courts declined from around 500 days in 2014 to around 200 days in 2019.
  - Clearance rate increased from around 80 percent in 2013 to around 120 percent in 2019.
- Source of evidence: Spac and others, 2018; ENCJ, 2016; EU Justice Scoreboard, Orbis and IMF staff estimates.

### Empirical findings on investment and productivity
- Firm-level evidence for Slovakia suggests a positive impact of judicial reforms on investment and productivity (Appendix I).
- Comparative context: analysis builds on the methodology by Chemin (2020) applied to Portugal and Slovakia.
- Key empirical approach:
  - Uses a standard ex post evaluation difference-in-difference technique.
  - Identifies court-sensitive sectors as those that are more capital intensive: manufacturing, financial and insurance activities, real estate activities and construction.
  - The coefficient β captures the impact of judicial reforms in the specified regressions for fixed asset growth and labor productivity growth.

### Regression estimates (as reported)
- Table 1. Impact of Judicial Reforms on log Labor Productivity Growth
  - ln Fixed assets:
    - Portugal: -0.054  (0.001)
    - Slovakia: -0.047  (0.003)
  - ln MRPK:
    - Portugal: -0.074  (0.001)
    - Slovakia: -0.057  (0.004)
  - 퐼퐼s∈court sensitive:
    - Portugal: 0.077  (0.004) and 0.083  (0.004)
    - Slovakia: 0.021  (0.011) and 0.023  (0.011)

- Table 2. Impact of Judicial Reforms on log Fixed Assets Growth
  - ln Fixed assets:
    - Portugal: -0.073  (0.002)
    - Slovakia: -0.127  (0.007)
  - ln MRPK:
    - Portugal: 0.159  (0.002)
    - Slovakia: 0.087  (0.008)
  - 퐼퐼s∈court sensitive:
    - Portugal: 0.141  (0.007) and 0.159  (0.007)
    - Slovakia: 0.021  (0.021) and 0.073  (0.020)

### Policy simulations for Greece (scenarios and results)
- Simulation framework:
  - Pools firm-level data for Portugal and Slovakia.
  - Leverages Chemin (2020) difference-in-difference framework and applies estimated impacts to Greek firms.
  - Uses year 2019 as the starting point for counterfactual simulations for Greece.
- Data used for simulations:
  - Orbis firm-level dataset, annual, covering 2010 to 2020, truncated up to year 2019 to filter out COVID-19.
  - Final cleaned sample sizes:
    - Portugal: about 62 thousand firms
    - Slovakia: about 10 thousand firms
    - Greece: about 5 thousand firms
- Simulation findings (summary):
  - Simulated impact suggests Greece could benefit from judicial reforms in terms of gains in investment and productivity.
  - The simulated impact is higher for investment than for productivity, consistent with results for Portugal and Slovakia.
  - Results are presented as illustrative and are surrounded by a wide margin of error, but indicate a meaningful potential growth dividend from judicial system efficiency reforms.

### Conclusions and policy implications
- Status and challenge:
  - Greece’s judicial system efficiency is one of the lowest in the EU and impedes full economic performance gains from reforms (e.g., insolvency framework).
  - Crisis period amplified weaknesses via increased demand (congestion) and reduced supply (inadequate deployment of human and financial resources, low digitalization).
- Transmission channels through which judicial efficiency affects economic performance:
  - Investment, productivity, and credit market functioning.
- Recommended multi-pronged approach (quantitative and qualitative):
  - Quantitative priorities:
    - Reduce case processing times and court backlogs.
    - Monitor staffing levels and ensure adequate staffing.
    - Continue court reorganization, digitalization, training, and shifting some tasks away from judges.
    - Establish quantitative indicators to monitor progress; indicators should be specific and allow aggregation/disaggregation.
  - Qualitative priorities:
    - Greater specialization of judges and professionalization of insolvency representatives.
    - Consider setting up commercial courts to enable permanent specialization in commercial matters (company law, commercial contracts, intellectual property) to improve efficiency and legal certainty.
    - Enhance support staffing and ensure an adequate budget (noting the upcoming appointment of 300 new judicial clerks as a positive step).
  - Judicial statistics and management:
    - Improve qualitative and quantitative judicial statistics system-wide to support budgetary and staffing decisions and enable resource reallocation across the court system.
    - Ensure centralized and adequate court-level management based on reliable statistics for timely rebalancing of workloads.
  - Procedural and institutional reforms:
    - Continue revising and simplifying the Code of Civil Procedure to limit postponement and delaying tactics.
    - Further develop, regulate, and supervise insolvency professionals so they can make decisions with legal effect and reduce court workload; leave courts as recourse when decisions are challenged.
- Urgency:
  - Bold and swift policy actions are indispensable to address legacy issues and create conditions for higher growth and resilience.
  - Ongoing reforms leveraging EU funding are appropriately prioritized but require swift execution to meet disposition time targets and realize a meaningful growth dividend in the foreseeable future.

### Appendix I — Technical aspects (data, methodology, and simulation design)
- Data and sample:
  - Source: Orbis dataset, cleaned following Díez et al. (2021).
  - Coverage: market economy sectors only (excludes education, human health and social work activities, public administration and defense), annual data 2010–2020 truncated to 2019.
  - Firm selection for impact estimates: firms present in the year before reform (2012 for Portugal, 2013 for Slovakia) and in 2019.
  - Cleaned sample sizes: about 62 thousand (Portugal), 10 thousand (Slovakia), 5 thousand (Greece).
- Methodology:
  - Difference-in-difference ex post evaluation comparing court-sensitive sectors to less court-reliant control sectors.
  - Identification of court-sensitive sectors: manufacturing, financial and insurance activities, real estate activities and construction (more capital intensive).
  - Main regression specifications (estimated separately for fixed asset growth and labor productivity growth):
    - ln Fixed assets_s,t = c_s + γ_s + a⋅firm features_s,t−lag + β D_s I_s∈court sensitive + ε_s,t
    - ln MRPL_s,t = c_s + γ_s + a⋅firm features_s,t−lag + β D_s I_s∈court sensitive + ε_s,t
  - For simulations, refined specifications include interaction of reform dummy with firm features to quantify heterogeneous impacts across firms and industries, where firm features include industry fixed effects, firm’s log fixed assets, log marginal revenue productivity of capital and labor relative to industry average.

*Source: 1grcea2025002-print-pdf - 25. Slovakia’s judicial reforms can help shed some light on their economic impact too.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1grcea2025002-print-pdf.pdf_