Source: Yahoo Brazil - 22/07/2010

The informal economy in Brazil is equivalent to Argentina, or R $ 578,4 billion per year, equivalent to 18,4% of the Gross Domestic Product (GDP). Also known as the underground economy, informality encompasses all production of goods and services not reported to governments. The loss of annual revenue reaches R $ 200 billion.

This set of activities was measured in an unprecedented study by the Brazilian Institute of Economics of the Getúlio Vargas Foundation (Ibre-FGV), commissioned by the Brazilian Institute of Ethics in Competition (Etco). They calculated the Underground Economy Index. The proportion in relation to GDP decreased in relation to 2003, when the index reached 21% of GDP.

According to the person responsible for the study, professor Fernando Holanda Barbosa Filho, the main factors that account for the reduction of the underground economy in Brazil are the increase in GDP growth, the increase in the number of people formalized in the labor market and the expansion of credit.

Other important elements are related to the modernization of the economy, greater trade opening, with the advance of exports and the evolution of collection systems, such as electronic invoices.

The reduction of tax bureaucracy, with the establishment of the Super Simples regime, also contributed to the formalization.

“GDP growth is a holy remedy”, commented Luiz Schymura, director of Ibre. According to him, the expansion of the activity level allows institutional improvements in the country, such as the search for productive efficiency and the increase of formalization in the labor market.

In Barbosa Filho's assessment, if Brazil grows by around 7% this year, it is feasible that the underground economy index reaches 18% of GDP by the end of 2010.

Investment. "With the continued expansion of the country, the shadow economy should continue to fall, although it is not possible to say now what the exact level of reduction would be". According to those responsible for the research, informality in Brazil is still very high. In the member countries of the Organization for Economic Cooperation and Development (OECD), the rate is around 10% of GDP.

André Franco Montoro Filho, executive president of the Etco institute, says that in other Latin American countries the informality rate is even more worrying, reaching 30% of GDP.

In Montoro Filho's assessment, the reduction in the shadow economy indicates the evolution of the level of development of the economy. He considers that the term informal economy is a kind of euphemism for the illegal economy, which includes those who do not pay taxes for their activities. "This is bad, because it sends negative signals to formal entrepreneurs and creates a bad business environment," he commented.

According to him, the underground economy inhibits investments, as part of the companies do not find incentives to expand their activities if competitors do not pay taxes. "Considering the tax burden, it is possible to estimate that there is tax evasion of approximately R $ 200 billion per year in the country", says Montoro Filho. "Many jobs could be generated, since all federal government investment in the year reaches R $ 30 billion". The information is from the newspaper O Estado de S. Paulo.