Underground Economy Index remains in decline, point ETCO and IBRE / FGV


Impacted by the acceleration of formalization indicated by the Monthly Employment Survey (PME), an estimated index for 2013 is 15,9% of GDP

São Paulo, November 26, 2013 - The Underground Economy Index (IES), released today by the Brazilian Institute of Competition Ethics (ETCO) in conjunction with the Brazilian Institute of Economics of the Getulio Vargas Foundation (IBRE / FGV), reached the mark 15,9% in 2013, which represents a 0,8 percentage point reduction compared to the previous year.

In absolute figures, the estimate is that the underground economy - the production of goods and services not reported to the government, which is outside the national GDP - exceeds the R $ 760 billion mark in 2013.

“The process of formalizing employment in the country is here to stay. Factors such as the ever smaller demographic growth, with the consequent reduction of people in the labor market, influence the fall in unemployment and a low unemployment rate favors the reduction of informality ”, comments IBRE / FGV researcher, Fernando de Holanda Barbosa Son. He also recalls the influence of the increase in the general level of education of Brazilians in the fall of informality. “Between 2001 and 2011 there was an increase of 22 million people with formal education”, comments Barbosa Filho.

Despite the positive reading, it must be considered that the unexpected acceleration in the fall in informality may be rooted in other specific factors, which should not be overlooked, such as the temporary payroll tax relief for some sectors of the economy. "The exemption from payroll, in theory, should have an impact on informality, but there is no way to affirm or carry out an analysis of the direct impact of the measure on informality," says the researcher.

For the executive president of ETCO, Roberto Abdenur, “the current results reflect the desired structural changes in society, such as, for example, the increase in educational level and the low unemployment rate, which is extremely positive for the country”.

With regard to payroll relief measures, he highlights the Government's effort to create incentive mechanisms for certain sectors of the economy. “We just cannot lose sight of the possible impact of this tax waiver on tax revenues and, consequently, on the provision of public services”, he evaluates. In 2012, the tax waiver was of the order of R $ 4 billion. For 2013, it is estimated to reach R $ 18 billion, while for 2014 the perspective is R $ 34 billion.

“Measures like this certainly have a lot of value in balancing the economy, but they should always be analyzed from the perspective of reflexes in the short, medium and long term. It is necessary to look at tax reform more broadly, so that it allows a more lasting and horizontal exemption ”, said Abdenur, also recalling the need for other measures, such as the control of public spending.

What is certain is that informality brings direct damage to society, creates an environment of transgression, stimulates opportunistic economic behavior, with a drop in the quality of investment and a reduction in the growth potential of the Brazilian economy. In addition, it causes a reduction in government resources for social programs and investments in infrastructure.

About the Shadow Economy Index
ETCO believes that knowing the size of the problem is critical to tackling it. Much is said, but little is known about informality, piracy and evasion, as, as illegal activities, they are difficult to measure. The ETCO, in conjunction with the Brazilian Institute of Economics of the Getulio Vargas Foundation (Ibre-FGV), has since 2007 released the Underground Economy Index, a study that estimates the values ​​of activities deliberately not declared to public authorities, with the objective of evading taxes, and those of those who find themselves in the informal sector due to excessive taxation and bureaucracy.