Underground economy grows 4,7% in six months


Author: InfoMoney Team

Source: InfoMoney, 18/11/2008

SÃO PAULO - The high tax burden, rigidity in companies, the level of activity and corruption contributed to the underground economy registering a growth of 4,7% in relation to GDP (Gross Domestic Product) - sum of all the wealth produced in the Brazil - between December last year and June this year. The data is part of the Underground Economy Index, measured by FGV (Fundação Getulio Vargas) in partnership with Etco (Brazilian Institute of Competition Ethics).

The update of the index was released on Tuesday (18), but the survey has a historical series measured since March 2003. In June 2008, the indicator reached 99,4 points, the highest since September 2004, when had reached 99,2 points.

The index aims to show paths for the elaboration of public policies that create mechanisms to incorporate informality into the formal economy.

“The underground economy is a little different from the informal one. It has a larger object of study, measuring the production of goods and services carried out, not reported to the Government, with the objective of evading taxes or social security contributions, and also without complying with labor regulations, "explained Fernando de Holanda Barbosa Son, researcher and professor at the foundation, in April this year, at the time of the launch of the study.

However, according to the researcher, the underground economy is an unobservable variable. "Thus, it is necessary to locate traces left by the underground economy and variables that relate to it," he explained.

To prepare the study, the following variables were analyzed:

Tax Burden - the higher the tax burden, the greater the incentive to operate in the underground economy. In the most recent study, the load calculated between December 2007 and June 2008 corresponds to 29,4% of the index;

Activity level - represented by unemployment, has a positive impact on the shadow economy. This means that the higher this component, the higher the index. According to the updated data, the activity level reached 41,7%;

Stiffness index - a highly regulated economy stimulates the growth of the shadow economy, which is more flexible and therefore responds more quickly;

Export - a greater share of exports in GDP tends to reduce the shadow economy. “The export activity is extremely regulated. Therefore, an industrialized products company needs to comply with a series of laws and regulations to export ”, commented the researcher. The data released on Tuesday point to a fraction of 28,9% of exports in GDP;

Corruption - a higher level of corruption reduces the chance of punishment, because, once detected, there is still a way out. The underground economy is linked to the activity of tax evasion, non-compliance with laws and regulations.