How it is calculated
Understand how Ibre / FGV estimates the Underground Economy Index
The size of the underground economy is estimated from two indicators:
The Shadow Economy Index is calculated by averaging two important indicators of the economy. Monetary method Raising the currency due to the tax burden and informal work. Informal work Percentage of workers without a formal contract and income from informal work.
Informal activity tries to remain unobserved by the authorities and, consequently, has a higher demand for money than formal activities, which use more banking instruments for their transactions. Thus, the increase in informal activity will raise the demand for money through two channels:
- Increase in the proportion of workers without a license.
- Higher taxation.
The hypothesis is that the increase in taxation induces an increase in the underground economy, which also generates an increase in the demand for currency
Based on the PNAD, the average is calculated between the percentage of informal workers and the percentage of income from work that is informal.
The level of the underground economy is the average between the two methods: monetary method and informality in the labor market.