Expansion of activity stimulates increase of 4,7% in the underground economy


Source: O Globo Online, 18/11/2008

SÃO PAULO - Despite the country's economic growth in the first half of this year, from December to June this year there was an expansion of 4,7% in the activity of the so-called “underground economy” - which includes practices such as informality and tax and tax evasion. Surprisingly, the variable that most contributed to this expansion in the period was the increase in the level of activity, with a weight of 41,7%.


The variation is in the update of the Underground Economy Index, made by the Brazilian Institute of Economics of the Getúlio Vargas Foundation (Ibre / FGV) at the request of the Brazilian Institute of Ethics in Competition (Etco). The intention of the indicator, launched in June and with a historical series starting in March 2003, is not to measure these activities in the country, but to monitor some of its causes in order to stimulate public policies that resolve the issue. Between December last year and June this year, the index went from 94,9 points to 99,4 points, an increase of 4,7%.


Fernando de Holanda Barbosa Filho, researcher responsible for the study, explains that, contrary to popular belief, the increase in the creation of formal jobs, generated by the high level of activity, does not slow down the expansion of the underground economy. According to the economist, both the real and formal economy and the underground economy interact. The increase in income in one sector encourages the purchase of goods and services in the other sector and vice versa.


Another important variable for the growth of the indicator in recent months, with a share of 28,9%, was the decrease in the fraction of exports in relation to GDP (considering only manufactured products). The behavior of foreign sales is important, since to export Brazilian companies must necessarily have a standard of formality and payment of taxes and contributions. Thus, the smaller this fraction, the greater the weight for the expansion of the underground economy.


Another variable, which historically is the most pointed out as a cause of informality, is the high tax burden, which contributed 29,4% to the increase in the Index from December to June this year. For Luiz Guilherme Schymura, director of Ibre, since there is no flexibility in this tax issue, it would be important to reduce the “bureaucratic burden”, with a reduction of time and processes in the opening of companies, for example, to reduce this gray area in which some projects are transiting.


Corruption had no impact on the index count in the period under review, but it was already responsible for a leap in the indicator, which went from 110,3 in June 2003 to 119,7 points in December of the same year.


According to Barbosa Filho, this jump was explained by the perception of corruption, whose survey is carried out by the PRS Group on a monthly basis and inserted as an index variable. The survey is obtained from representatives of the productive sector and seeks to assess the perception of the possibility of corruption.


Since March 2004, the Underground Economy Index has been decelerating, even with a strong level of activity throughout 2004, to 93 points in December of that year. This was due to the reduced perception of corruption.


For André Franco Montoro Filho, representative of Etco, in general the corruption research also captures frustration in relation to the government. According to him, if the entrepreneur or entrepreneur does not feel sufficiently represented by a government, tax evasion tends to increase.


The next update of the index, in March of next year, should capture some changes in the index variables, especially in relation to activity and exports, which should be impacted by the worsening of the international crisis.

(Bianca Ribeiro | Valor Online)