Crisis causes underground economy to increase participation in GDP (Portal JFMG)


Source: JFMG Portal, 15/05/2009

The underground economy increased its participation in the Gross Domestic Product (GDP, sum of all goods and services produced in the country) by 13,6% between September and December last year, a period when the international crisis began to hit Brazil. In the last quarter of 2007, growth had been only 3,8%. The data were released today (14) by a survey by the Getulio Vargas Foundation (FGV).

This sector represents both the informal economy and illegal procedures adopted by sectors of the formal economy, such as tax evasion and non-compliance with laws. According to FGV, the growth in the share of this segment in GDP is due to both the shrinking of the formal economy and the increase in the underground economy, which grew 9,5%.

For FGV researcher Fernando de Holanda Barbosa Filho, this can be explained by the credit contraction in Brazil, which affected the formal economy, but not the underground one. “The impression it gives is that the economic crisis did not affect the underground economy, because the main channel of the crisis in Brazil was credit. As she is not dependent on credit, she naturally continued her trajectory, ”he said.

The researcher's expectation is that, in the first quarter of this year, which has not yet been measured, the underground economy has finally shrunk. The explanation, according to him, is that the formal and underground economies are dependent on each other, in Brazil. In other words, when economic activity grows, informality also grows, because money from one sector feeds the other and vice versa.

That is why, despite not having felt the financial crisis at that first moment, the underground economy must start to follow the formal economy and also reduce its growth rate. In addition to being fueled by formal economic activity, the underground economy is also expanded when there is a greater tax burden and a greater perception of corruption among Brazilian businesspeople.

The last two factors, incidentally, were mainly responsible for the increase in this segment of the economy, in the last quarter of 2008. According to FGV data, the perception of corruption was responsible for 31,5% of this increase, while the tax burden accounted for 69,3%.

For the president of the Brazilian Institute of Ethics in Competition (Etco), André Franco Montoro Filho, this research proves the thesis that the increase in the tax burden stimulates the underground economy.

“We have used this data to argue with both state and federal authorities about the need not to increase the tax burden and, if possible, reduce it. And one of the fundamental elements for this is the fight against tax evasion, because, to the extent that everyone pays, it is possible to reduce the tax burden ”, said Montoro.

FGV's research also showed that the underground economy grew 27,6% in 2008, compared to 2007, and, in this period, increased its participation in GDP by 27,1%. In 2007, the growth in participation in GDP had been only 5%.