Formal growth helps “underground” economy


Source: Valor Online, 19/11/2008

Despite the country's economic growth in the first half of this year, from December to June this year there was an expansion of 4,7% in the activity of the so-called “underground economy” - which includes practices such as informality and tax and contribution evasion. Surprisingly, the variable that most contributed to this expansion in the period was the increase in the level of activity, with a weight of 41,7%.

The variation consists of the update of the Underground Economy Index, made by the Brazilian Institute of Economics of the Getúlio Vargas Foundation (Ibre / FGV) at the request of the Brazilian Institute of Ethics in Competition (Etco). The intention of the indicator, launched in June and with a historical series starting in March 2003, is not to measure these activities in the country, but to monitor some of their causes to stimulate public policies that resolve the issue. Between December last year and June this year, the index went from 94,9 points to 99,4 points, an increase of 4,7%.

Fernando de Holanda Barbosa Filho, researcher responsible for the study, explains that, contrary to popular belief, the increase in the creation of formal jobs, generated by the high level of activity, does not slow down the expansion of the underground economy. According to him, both the real and formal economy and the underground interact. The increase in income in one sector encourages the purchase of goods and services in the other sector and vice versa.

Another important variable for the recent growth of the indicator, with a share of 28,9%, was the decrease in the fraction of exports in relation to GDP (considering only manufactured products). The behavior of foreign sales is important, since to export companies must necessarily have a standard of formality and payment of taxes and contributions.

Another variable, historically identified as a cause of informality, the tax burden contributed 29,4% to the increase in the Index from December to June this year. Corruption had no impact on the index count in the period under review, but it was already responsible for a leap in the indicator, which went from 110,3 in June 2003 to 119,7 points in December of the same year.