High tax burden and corruption stimulate informal activities


Source: O Estado de S. Paulo, 06/04/2008

The methodology used to measure the Brazilian underground economy in the new indicator of the Getúlio Vargas Foundation (FGV) is the most advanced in the world to evaluate something that is not seen, according to the economist responsible for the indicator, Fernando de Holanda Barbosa Filho.


The method takes into account what stimulates the underground economy and the tracks it leaves. He points out that the project is bold and is not restricted to the evaluation of the underground economy as something only linked to the informality of the labor market, but to the entire production of goods and services in the economy that goes beyond the control of the State.


For a year, Barbosa Filho tested the numerous variables that could stimulate the underground economy. He concluded that the most significant are the high tax burden and corruption. "Depending on the season, these two factors take turns between the first and the second among the most important." The economist notes that high corruption is a factor that encourages informality because it allows to circumvent formal controls.


Contrary to what is supposed, the FGV index shows that the rigidity of the labor market is not a factor that stimulates the increase of the underground economy. Exports, on the other hand, play against the underground economy because they are highly bureaucratic.


Barbosa Filho considered as reflections of the underground economy to build the index the share of informal workers in relation to the employed population, discounting those without a wallet, and the participation of paper money held by the public in relation to demand deposits. Both variables go in the same direction as the shadow economy, that is, they grow when it grows and decrease when it decreases. The economist points out that the underground economy basically uses cash for transactions. For this reason, the ballots held by the public are an important indicator of the performance of the activity.


The FGV study does not measure the size of the informal economy. Economist Friedrich Schneider, professor of economics at Johannes Kepler University Linz, Austria, told the state that the underground economy in Brazil can fluctuate between 39% and 40% of GDP. According to the professor, the country is on average compared to other countries in Latin America. FGV, Instituto Etco and IBGE find the professor's estimate exaggerated. "This number is barbaric", says the coordinator of National Accounts at IBGE, Roberto Olinto. He says that GDP already incorporates almost the entire informal economy.