Informal economy grows amid the crisis, points out FGV (Folha Online)


Source: Folha Online, 14/05/2009

The so-called “underground” economy –production of goods and services not reported to the government–, which measures the informal market and illegal movements among the formals, grew even more during the first impacts of the economic crisis in the country, in the last quarter of last year .


In that period, this economy expanded by 13,6% within the GDP (Gross Domestic Product), driven by the lack of credit in the formal market, which may have led companies to resort to undeclared activities to the government.


In the previous three quarters, the expansion of the shadow economy within the total economy had not been more than double digits. According to Etco (Brazilian Institute of Competitive Ethics), the informal economy represents 20% to 30% of GDP. The FGV survey does not detail the values ​​of these interests.

“We realize that the credit crunch has hit the formal economy very hard, but the data does not show the underground economy being affected by it. It is even natural, since, as it is underground, it does not need credit to continue its movement ”, said researcher Fernando de Holanda Barbosa, from Ibre (Brazilian Institute of Economics), from FGV (Fundação Getúlio Vargas).


From December 2007 to December 2008, the underground economy expanded by 27,1% in GDP, the largest in the series started in 2003. This movement was also influenced by the increase in economic activity for much of last year, which ended up boosting the illegal economy.

“Economies are growing in parallel, one feeding the other. Income generated in the shadow economy is spent in the formal economy, and income generated in the formal economy is also spent in the shadow economy, ”he explained.


Other factors, however, also determine the FGV index, such as the level of the country's tax burden, the perception of corruption with businessmen and the level of exports, which, according to Barbosa, is a good measure of irregularities, due to the great bureaucratization.

“The variables all combined, with the exception of exports, implied this increase. The level of activity contributed because unemployment was falling and the tax burden was once again the factor with the greatest contribution. And corruption too ”, he observed.


The survey data shows that until September, the level of economic activity was the main factor driving the shadow economy. After the crisis, the influence of the tax burden led more people to the illegal economy.


“This is a symptom that something is strange about the Brazilian economy. There must be something pushing companies into the underground economy, rather than the formal one. The main variable that we see is the tax burden, it explains a large part of this increase ”, commented Barbosa.