Trends / Debates: The hidden economy


Source: Folha de São Paulo - 17/12/2012

A major obstacle to the development of a country is the share of the economy that comes from activities deliberately not declared to the government, to evade taxes or because they are illegal.

This portion has been estimated by the Brazilian Institute of Economics of the Getúlio Vargas Foundation (Ibre / FGV), at the request of the Brazilian Institute of Competition Ethics (ETCO), through the Underground Economy Index (IES).

The IES historical series dates back to 2003, when it represented 21% of Brazil's GDP, totaling R $ 357,8 billion, or R $ 626 billion in 2011 values. In almost ten years, there was a significant reduction in the size of this underground economy, especially in the past five years.

Economic growth contributed to this fall, which causes an increase in financial intermediation, requiring complete documentation and, consequently, the formalization of companies. Also growing imports and exports have been a driving force in the formalization of economic activity.

With the exception of 2009 - an atypical year for the economy, due to the global crisis -, since 2007, the HEI had fallen by 0,7 percentage point, going from 20,2% in 2006 to 17% in 2011. The most recent estimate of IES shows, however, that it has stopped falling. As the researchers already predicted, the index registered now, of 16,9%, reached its minimum level.

The determining factor to stop this reduction in the underground economy is education.

According to data from the National Household Sample Survey (Pnad), between 2002 and 2011, informality in the labor market dropped 10 percentage points, from 43% to 32%. The increase in the 22 million people who were educated between 2001 and 2011 accounts for 64% of this drop.

This is a surprising number, in the opinion of Ibre / FGV researcher Fernando de Holanda Barbosa Filho, responsible for preparing the IES.
Improving the educational system is a huge challenge. There has been great progress in recent decades, especially in access to school. But the number of children who do not finish elementary school is still significant.

In addition to education, labor laws weigh in on IES stagnation. Despite the rigidity of these laws and the costs of hiring and firing employees, Brazil has reduced outsourcing in recent years, even to retain talent.

The government has signaled improvements in relation to the tax burden, by relieving the payroll of sectors of the economy. But experts believe that CLT reforms could be made in times of economic difficulties. It is more difficult to promote changes at a time like this, when unemployment is low.

If, on the one hand, softening labor laws is an increasingly essential mission, investing in education is much more than a goal. It is an obligation for a nation that claims to be strong and positioned among the main economies in the world.

ROBERTO ABDENUR, 70, is a diplomat and executive president of the Brazilian Institute of Ethics in Competition