Source: O Estado de S. Paulo, 18/04/2008

The Brazilian underground economy, which is the entire production of goods and services that escapes official controls, grew 8,7% last year while the Gross Domestic Product (GDP) increased 5,4%, according to the Brazilian Institute of Economics (Ibre ) of the Getúlio Vargas Foundation (FGV). As a result, the growth rate of the shadow economy was 61% higher in the period compared to the performance of the formal economy. The result was driven by an increase in the tax burden.

“The underground economy grew at a faster rate than the formal one because it is more flexible”, said Ibre researcher, Fernando Barbosa de Holanda Filho, and responsible for the institution's new indicator, which was presented yesterday to the market. Ordered by the Brazilian Institute of Ethics in Competition (Etco) from Ibre, the underground economy index will monitor quarterly the performance of economic activity that is not captured by official indicators.

According to the president of Etco, André Franco Montoro Filho, the intention of having an underground economy indicator is to find out what stimulates this activity and to have a basis to outline public policies that reduce informality.

To build the new index, Barbosa Filho found that five factors influence the underground economy. The level of activity, corruption and the tax burden vary in the same direction as the shadow economy. That is, when these variables increase, the shadow economy grows. Export runs in the opposite direction: when it increases, it reduces informal economic activity. Barbosa Filho says that exports, due to strict rules and many requirements, negatively affect the underground economy. The rigidity of the labor market, in contrast to what was expected, did not appear as a factor influencing the underground economy

According to the indicator, the tax burden was the factor that most stimulated the underground economy in 2007. Of the 8,7% variation registered by the index in 2007, the tax burden accounted for 3,6 percentage points, followed by the level of activity, with 2,75 points and exports, with 2,35 points. The corruption factor was stable in the period.

The study shows that, between 2003 and 2007, the level of activity was the factor that most stimulated the underground economy. In this five-year period, underground activity grew 10,9% and the level of activity contributed 9,23 percentage points to this result. The tax burden came in second place and accounted for 7,55 percentage points of the result, followed by exports with 4,44 points. Corruption decreased in those years contributed negatively with 10,32 points.