Author: Gabriel Costa

Source: Jornal do Brasil, 15/05/2009

The so-called underground economy, which encompasses not only the informal market, but any economic sectors that include activities not declared to the government, grew 27,6% in Brazil between December 2007 and December 2008, according to data released yesterday by the Brazilian Institute Economics of Fundação Getulio Vargas (Ibre / FGV) in partnership with the Brazilian Institute of Ethics in Competition (Etco). Legalized companies, which fall into the formal economy, but evade taxes or disregard environmental standards, are also part of the underground economy.

According to the executive president of Etco, André Franco Montoro Filho, the main factor for growth in the period was the high tax burden in the country, which leads workers and companies to informality. According to the new data, of the total growth rate, 55,7% refer to the increase in the tax burden. The economist says that the issue has already been highlighted in previous updates to the index, which has been measured retroactively since 2003, but has been confirmed as a fundamental issue in the last period.

- Now it is no longer a guess, it is proof. The underground economy, fundamentally, is composed of activities that are not registered, totally or partially - he explains. - This is because legality has a cost, represented in large part by the tax burden.

In the period of worsening of the world economic crisis, from September to December last year, the underground economy, as a fraction of the Brazilian Gross Domestic Product (GDP), increased by 13,6%. In the last three months of 2007, growth was 3,8%.

Fernando de Holanda Barbosa Filho, one of the researchers responsible for the study, says that the movement of the underground economy is closely linked to the direction of the formal market.

- The two sides of the economy interact, and when the population's income increases, it consumes more of both the underground economy and the formal economy - says Barbosa.

If informality and other sectors included in the classification are growing at a pace consistent with that of the formal economy, it would be expected that the sector had not grown so significantly in the period of crisis. The expert believes, however, that the underground economy did not suffer much impact as it did not depend on credit, which was one of the biggest victims of the turbulence.

Montoro, who chaired the National Bank for Economic and Social Development (BNDES) between 1985 and 1987, also highlights the excessive bureaucracy and rigidity in the labor market as factors that stimulate the underground economy.

- These data show that the excess of bureaucracy encourages illegal trade, which is much more agile than the formal market - he says.

For the specialist, it is necessary that conditions are created so that the legal trade can present the same agility. Montoro highlights initiatives in the line of Individual Microentrepreneurs (MEI) and Simples Nacional, or Super Simples, as important steps in this process.

The economist also says that other factors responsible for stimulating the underground economy are the perception of corruption by the population and the country's exports. This is because the export sector has a lot of regulations, which makes it difficult for agents outside the State's reach.