Net Primary Income from RoW

Something which I think goes overlooked from time to time is the fact that what is actually available as (taxable) income within a country is not GDP but GNP (which is GDP plus net income from RoW). As a result, calculations involving maximum tax income potential and debt sustainability should take into account any income lost from GDP as income of foreigners.

This is especially true for Greece where an examination of the available data actually shows that somewhere close to its Euro entry the country moved from a positive net income balance to an increasingly negative one, both nominally and as a percentage of GDP:

At its peak (2008), Greece lost more than 3% of its GDP as income returned to RoW with dynamics that were quickly becoming unsustainable. Ever since the 2009 crisis and especially after 2012 (and the PSI exercise) that lost income was significantly reduced (and even reversed at least during 2012). Nevertheless, it seems that funds lost to the RoW are slowly increasing again with the relative balance (as %GDP) moving from -0.6% in 2012 to 0.4% during 2014:

Although the figures are still almost an order of magnitude less than during the second half of the previous decade their long-run dynamics should be modeled in any debt sustainability exercise, especially since Greece will depend on FDI for a large part of its future economic growth (which will create large flows of income for the RoW).

The same dynamics (with a peak again during 2008) are actually present in the rest of Europe as well with the periphery increasing its lost income during the Euro’s first decade and EU center (Germany, France, Netherlands) moving from a roughly balanced figure to positive net income of close to 2% GDP (which obviously increases their taxable income):