Source: Brasil agro, 15/05/2009

The participation in the Brazilian GDP of goods and services not reported to the government grew by 27,1% in 2008 - the highest rate since the beginning of the FGV (Fundação Getulio Vargas) historical series, in 2003. The expansion gained strength mainly in the last quarter, when the so-called underground economy grew above the formal one, more impacted by the crisis.

"This is a symptom that something is strange about the country's economy," said economist Fernando de Holanda Barbosa Filho, for whom there are factors that are "pushing" companies into informality and illegality. "The main variable you see is the tax burden, it explains a large part of this increase."
The economist said that to arrive at the result, he used as a basis the proportion of workers without a formal contract and that of paper money in circulation on deposits.

These data function as "vestiges" left by the underground economy. To circumvent the inspection, companies avoid the banking system and employment ties.

Barbosa Filho said, however, that the information is not enough to specify the size of this economy in Brazil - which, according to Etco (Brazilian Institute of Competition Ethics), is 20% to 30% of the country's GDP. They allow, however, to compare the evolution over time and to point out the factors that most contributed to this behavior.

Corruption

In 2008, for example, in addition to the tax burden, there was also an increase in the perception of corruption in the country. According to the FGV researcher, reports of embezzlement of public money give entrepreneurs an “excuse” to evade, in addition to reducing the fear of punishment. "The businessman ends up thinking that he can bribe the inspector if he is caught," he said.

The drop in the proportion of exports over GDP was another factor pointed out by the economist. As they require a very high level of formalization, foreign sales act as a disincentive to the underground economy.
The expansion of economic activity observed over most of last year had the opposite effect. "When the formal economy grows and generates jobs and income, it has the capacity to generate income and create jobs also in the underground economy, because part of the people who receive a salary consumes goods provided by this economy," he said.

The FGV researcher said that this is one of the reasons why the economic crisis that hit the formal economy in the last quarter of last year did not have the same effect on the underground. "In the last quarter, despite the crisis, unemployment rates were still falling."

He also stressed that the main channel of transmission of the crisis in the country was credit, which was scarce with the collapse of the international financial system, but did not affect the informal economy, which is independent of it. For the researcher, however, the situation should change this year, as the level of unemployment in the first quarter showed signs of deterioration.