Source: O Estado de S. Paulo, 06/04/2008

The underground economy, which is the sum of the production of goods and services that, for some reason, escapes official controls, grew last year at a higher rate than the formal economy. In addition, the performance of this hidden economic activity in Brazil contradicted what occurs in underdeveloped countries and increased along with the formal economy, repeating the behavior of developed countries. In underdeveloped countries, usually when the formal economy advances, the informal economy recedes.

“Here, the shadow economy is riding the wave of the formal economy because the regulation of the formal economy is very large. The underground economy is more flexible, ”says economist Fernando de Holanda Barbosa Filho, a researcher at the Brazilian Institute of Economics (Ibre) of the Getúlio Vargas Foundation (FGV) in Rio de Janeiro.

Barbosa Filho, who did his doctoral thesis at the University of New York, in the United States, on the formality and informality of the labor market, created an unprecedented indicator to measure the behavior of the underground economy. The index will be released next week. Without revealing the figures, the economist says that the growth rate of the underground economy surpassed, in 2007, the 5,4% growth of the Gross Domestic Product (GDP).

According to the economist, this vigor of the underground economy is not necessarily bad. Barbosa Filho says that the underground economy generates a series of goods and services that cannot be produced in formality with the same agility. “Isn't it wonderful to have a series of umbrella vendors appear on the streets five minutes after the rain started? This shows how dynamic and flexible the underground economy is. ”

He believes that the trend is that the shadow economy will continue to grow this year at a faster pace than the formal economy. “Today everything is in favor of the underground economy: the tax burden is increasing and the level of activity is also increasing, exports are slowing down and corruption is at high levels”, he observes.

The index prepared by the economist shows how this part of the activity fluctuated quarterly between February 2003 and December 2007. The initiative to create an indicator to measure the behavior of the hidden economy was the Brazilian Institute of Ethics in Competition (Etco). The entity ordered FGV to calculate the indicator.

“The index will serve not only to show variations, but also the causes of the underground economy. The intention is to leave the guesswork and have concrete bases to guide public policies that create mechanisms to bring this slice of the economy to formality ”, says the executive president of Instituto Etco, the economist at the University of São Paulo, André Franco Montoro Filho. The key to incorporating informality into formality is to simplify: reduce requirements and red tape, says Montoro Filho.