Author: Anna Lúcia França

Source: Gazeta Mercantil, 18/04/2008

São Paulo, April 18, 2008 - The informal economy in Brazil is already growing at rates much higher than formal activity. While the Gross Domestic Product (GDP), which adds up to all the country's wealth, rose 5,4% in 2007, the so-called underground economy increased by 8,7% in the year. The growth is explained by the greater flexibility of informality. The conclusion is the research carried out by the Brazilian Institute of Economics of the Getúlio Vargas Foundation (Ibre / FGV) at the request of the Brazilian Institute of Competitive Ethics (Etco), with the objective of drawing up an Index of Underground Economy, launched yesterday in São Paulo.

 

The study, which should be used by Etco as an argument for guiding public policies, takes into account the various variables that drive informality, excluding trafficking and illegal activities such as smuggling.

 

Despite noting that the high Brazilian tax burden is in fact one of the biggest drivers of parallel activities, the researchers realized that it was not only this that pushed Brazil towards informality. Contrary to what was thought, the growth in the level of formal activity also pulls informality. “The underground economy, in Brazil, takes advantage of the growth of the formal economy and remains parallel. This is because the rules of formality are very strict. The underground economy, on the other hand, is more flexible and faster ”, says economist Fernando de Holanda Barbosa Filho, a researcher from Ibre and from FGV in Rio de Janeiro. He further explains that in poor countries, it is moments of crisis that favor informality and not the other way around.

 

Corruption goes hand in hand with the shadow economy, since it is linked to tax evasion and non-compliance with the laws. Thus, the greater the risk of being caught the greater the level of corruption, explains Barbosa Filho. “In addition, the perception of corruption in the economic spheres was very important, as it shows that many prefer not to pay taxes to not give money to the government”, says Etco professor and president, André Franco Montoro Filho.

 

Corruption data was obtained through studies by the international research institute PRS Group, responsible for preparing the International Country Risk Guide, which classifies the various risks for investors and companies in different countries. Among them, there is corruption, in which Brazil scored 2 in December 2006 - on a scale of 0 to 6, where 6 is the best.

 

Export is another data considered in the study, since informal companies are unable to participate in the activity, due to the excess of rules. "When exports are good, informality falls and when it is low, as now, they are not concerned with formalizing it," explains Barbosa Filho.

 

By closely monitoring the formal economy, the underground economy should also be affected by the high interest rates, announced yesterday by the government, according to Ibre director, Luiz Guilherme Schymura. According to him, when creating this new index, the two institutes want to show the dynamics of informality. "This index will contribute to give a more accurate idea of ​​the evolution of the informal economy", he says.

 

Created from an econometrics technique, known as mimicking, the index takes into account unobservable variables, such as informality. An example of this technique is the intelligence assessment, which uses variables that cannot be exactly measured, as explained by the president of Etco. “As an institute that defends competitive ethics, we accept this challenge to develop an index on informality, which does not take ethical behavior into account,” explains Montoro Filho. For him, only by knowing closely the dynamics of this sector can one understand the causes and promote changes.

(Gazeta Mercantil / Caderno A - Page 6)