Author: Karin Sato

Source: Valor Online - SP - BRAZIL - 01/12/2009

SÃO PAULO - The underground economy as a fraction of the Gross Domestic Product (GDP) grew by 22,6% between June last year and the same month this year. The index, measured by the Brazilian Institute of Economics, of the Getulio Vargas Foundation (Ibre-FGV) and by the Etco Institute, and released on Tuesday, went from 99.4 to 121.8, on this basis of comparison. Between December 2008 and last June, however, the increase was only 0,9%.

Underground economy is the name given to the production of goods and services deliberately not reported to the government for tax and contribution evasion, non-compliance with labor laws and regulations and cost reduction characteristic of the activity. Profit from illegal activities, such as smuggling and selling drugs, is included in the calculation.

The growth of the underground economy verified between June of last year and June of this year may have been motivated by the reduction in the level of activity of the economy, which generated unemployment; the perception of corruption, which encourages illegal activities; and the drop in exports.

However, the most timid increase between December 2008 and June this year may be a consequence of the crisis, amid which the tax burden may have fallen, with the tax incentives created by the government to combat the crisis.

(Karin Sato | Value)