Underground Economy hides an Argentina


Production beyond the control of the State moves 578,4 billion reais according to an estimate by Ibre / FGV under study for ETCO.

Watch the video: Underground Economy (5 min; wmv)

The Brazilian underground economy hides an entire Argentina. According to the study “Estimation of the Size of the Underground Economy in Brazil” produced by the Brazilian Institute of Economics (Ibre) of the Getulio Vargas Foundation, for ETCO, 578,4 billion reais circulated informally last year, equivalent to the country's GDP neighbor. This huge amount of resources corresponds to 18,4% of the country's Gross Domestic Product, according to an estimate by Ibre / FGV.

This is money that escapes State control and encompasses informality in the labor market and the production of goods and services by economic agents who seek to reduce their costs and, thus, increase their profits. “These activities that are not declared to the government seek to evade taxes, contributions to Social Security, labor laws and regulations, and to avoid costs resulting from the compliance with the rules applicable in a given activity”, says Fernando de Holanda Barbosa Filho, Ibre researcher and responsible for the study .

Around the informal activity, the street vendor stand, the irregular selling points also flourish the sale of drugs, stolen or smuggled products, in short, an entire illicit market. “But there is no direct variable that allows the estimation of illicit activities, so our estimation excluded them and focused on seeking the average size of the Underground Economy obtained by two methods: the monetary and informality in the labor market” adds Barbosa (read boxing).

The Underground Economy index was estimated using a historical series of statistical data from 2003 to 2009. The study shows that the estimate of the Brazilian Underground Economy in 2003 was equal to 21% of GDP and came in a gradual reduction until 2009, when it registered 18,4, 10,5% of GDP. Despite the reduction as a fraction of GDP, in real values ​​there was an increase of 2003% in relation to 523, when it reached XNUMX billion reais. "This shows that the informal economy continues to grow, but the good news is that it grows less than the formal GDP and then loses ground as a proportion of GDP," notes Barbosa.

Size of the Underground Economy in millions of reais and as a% of GDP

Table: Illegality

For Professor André Montoro, President of ETCO, reducing the size of the Underground Economy as a fraction of GDP is an advance, even if moderate. This reduction is the result of a combination of several factors, such as institutional modernization and the change in the growth regime of the Brazilian economy. “Today, credit has become important both for companies that want to grow and for workers who want to consume,” says Montoro. The worker feels more stimulated to look for a job with a record in order to have access to credit, either payroll deductible or real estate. “For companies, credit expansion brings the need to formalize, since financing for informal companies is almost nonexistent”, he adds.

An important factor in reducing the size of the Underground Economy as a proportion of GDP is the population's awareness of the losses caused by informality and the link between this Underground Economy and crime. This awareness, requiring invoices and not buying products of illegal origin, is helping to reduce the weight of the underground economy.


Analyzing the study data that show a reduction in the Underground Economy as a fraction of GDP from 2003 to 2009, Luiz Guilherme Schymura, Director of Ibre / FGV, says that “Brazil is modernizing, we are clearly experiencing a moment of transition with some disruptions and a greater effort is needed to overcome these indicators ”.

Size of the Shadow Economy as% of quarterly GDP

Table: Hidden Wealth

Ambassador Marcílio Marques Moreira, President of the ETCO Advisory Council, adds his voice to that of Schymura: “The Underground Economy in Brazil is a legacy of a country that is still institutionally underdeveloped, not very mature from a social point of view. From the point of view of the individual, a change would be necessary in the face of leniency with transgressions of all kinds, both in politics and in the economy. ” The Ambassador recalls that in the political field there are some recent signs of improvement, such as the Clean Record Law, but “we need a clean record law also for those who act in the economic area”, says Moreira.

Due to its size, the Underground Economy causes countless losses to those who live, produce and consume in the country. After all, it is a substantial amount, of almost 600 billion reais circulating illegally. The government loses a lot of resources. If the tax burden of the Underground Economy is similar to that of the rest of the economy, that is, 35%, it means that more than 200 billion reais of revenue is lost. The consumer is harmed because there is no guarantee that the product purchased on the informal market will live up to his expectations. The Consumer Protection Code is not respected in this Underground Economy.

Another one who loses with the Underground Economy is the good producer, the one who obeys the law, because he faces an imbalance of competition. This has a very serious impact on the economy. Illegal activity is an incentive for opportunists, companies or entrepreneurs to appear who seek to make money through transgressions and not through quality investments. Informality attracts opportunists and keeps good investors away. And this is terrible for the country, as it reduces our growth potential, our potential to generate jobs and income. The ETCO President warns: “It is important for the population to be aware of the damage caused by the Underground Economy. It is necessary to reduce bureaucracy, reduce the tax burden in order to make it easier to comply with tax and labor obligations.

In addition, it is necessary to establish more agile and easier mechanisms for monitoring these obligations ”.

In an effort to combat informality and unfair competition, ETCO operates on three fronts and with three strategies. "We seek to stimulate studies and analysis on the underground economy, its causes and relations with the formal economy to increase our knowledge about the problem."

At the same time, ETCO seeks to raise awareness among the population and specific audiences - such as the public and private sectors - about the losses generated by the underground economy and the advantages of competitive ethics. It also proposes and supports public and private initiatives that help to reduce the underground economy. These actions can be both to facilitate compliance with the law and to reduce the tax burden, labor bureaucracy and support for initiatives that improve inspection and punishment for offenders.


At the table, during the presentation of the study, André Montoro, President of ETCO,
Ambassador Marcílio Marques Moreira and Luiz Guilherme Schymura, Director of Ibre / FGV

Production deviated from legal frameworks, surreptitious, which evades taxes and labor obligations, occurs to a greater or lesser degree also in developed and developing countries. If in other countries informality is also a burden for those who work, live and produce within the legal norms, for Brazilians it must be clear that only the repressive dimension, with more inspection, is not enough to combat the voracity of this economy that develops contrary to the norms. “If everyone decides to be a profiteer, just following the law at the sight of inspectors, a society is not built”, says Montoro. Every citizen must be clear that respect for the rules is good for him, for his family and for the country.