Informal economy grows 8,7% and exceeds the formal index


Source: DCI, 18/04/2008

The informal economy has been growing at a faster pace than the real economy in the country. New index from the Getúlio Vargas Foundation (FGV), commissioned by the Brazilian Institute of Competition Ethics (Etco), shows that the production of goods and services that do not go through the sieve government, the so-called underground economy, advanced 8,7% in 2007, while the Gross Domestic Product (GDP), which accounts for the sum of all wealth produced in Brazil, grew 5,4% in the same period. Between March 2003, when the index started to be calculated, until December last year, the average growth of the underground economy was 10,9%.

To reach this percentage and give consistency to the Underground Economy Index, released for the first time yesterday, economist Fernando de Holanda Barbosa Filho, a researcher at the Brazilian Institute of Economics at FGV in Rio de Janeiro, highlighted the variables that most influence the economy that is not seen in official records, such as high tax burden, corruption, drop in exports and productivity index. “The idea is to use the surveys to indicate ways to increase the fraction of the official economy,” says Barbosa Filho.

The heavy tax burden has a weight in the index because it means a greater incentive for companies to flee to informality, as well as the excessive charges and regulations for formal hiring in the labor market. “The informal economy is more flexible and responds more quickly to the need for hiring. But we were unable to measure the rigidity of the labor market, which makes hiring more expensive, which could be considered as another variable for the underground economy ”, he evaluated.


As it is an extremely regulated sector, companies that export are within the law and therefore have a strong role in reducing the rate of informality. "With the rise in interest rates, which may lead to an even greater appreciation of the real and a reduction in exports, it is likely that lower foreign sales will stimulate the underground economy."

Economist André Franco Montoro Filho, president of Etco, points out the problems caused by the underground or informal economy: “It reduces tax revenue, the credibility of official statistics, makes it difficult to choose public policies and produces unequal competition between companies in the formal and informal sector”.

The informal economy has been growing at a faster rate than the real economy in the country. According to a study by FGV, the GDP of the so-called underground economy advanced 8,7% in 2007.