Tag: IES 2015

Underground economy grows again

by Evandro Guimarães and Fernando de Holanda Barbosa Filho (*)

The Brazilian underground economy represented, in 2015, 16,2% of the Brazilian GDP and grew in relation to 2014 (16,1%). This is the first growth in the annual comparison started in 2003, the initial year of the Underground Economy Index, built in partnership between the Brazilian Institute of Ethics in Competition (ETCO) and the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV / IBRE).

The underground economy is the production of goods and services deliberately not reported to the government, with the objective of evading taxes and evading Social Security contributions, laws, labor regulations and other norms that cause costs.

Failure to comply with laws and regulations, in addition to harming consumers, allows companies that use this expedient to continue operating. Companies that respect the law, on the other hand, suffer unfair competition, as they have competitors that do not bear all costs.

The increase in informality, although reduced, breaks the sequence of falls in this part of the activity that operates outside the law, and should be a cyclical event. The set of policies adopted that contributed to the recent reduction of the underground economy are still in operation and should return to the downward trend as soon as the crisis eases.

The reduction in the underground economy over the past few years (equivalent to 21% of Brazilian GDP in 2003) was the result of a set of measures that made the formalized activity more attractive. We observed a strong expansion of the credit market and a gradual increase in the average schooling of the population. The expansion of credit stimulated the formalization of both companies and workers. Formalizing the company and employment is, in most cases, an essential condition for accessing the credit market. The expansion of formal education raises wages, the bargaining power of workers and increases their chances of getting formal employment.

There was also the adoption of measures that sought to simplify compliance with legal norms and reduce their costs, such as the creation of Simples, Simples Nacional and Individual Microentrepreneur (MEI).

The reduction of the underground economy is important for the country. 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. The road is long, much has been achieved, but we still have a lot to do.

 

* Evandro Guimarães, Executive President of ETCO, and Fernando de Holanda Barbosa Filho, researcher at FGV / IBRE

 

Fernando de Holanda Barbosa Filho, researcher at Ibre / FGV speaks to CBN about the Underground Economy Index

Listen here to the interview given by Fernando de Holanda Barbosa Filho to Radio CBN on 28/06/16:

 
KNOW MORE: UNDERSTAND THE UNDERGROUND ECONOMY INDEX (HEI), ascertained by the Brazilian Institute of Economics (Ibre) of the Getúlio Vargas Foundation (FGV), in partnership with the Brazilian Institute of Competition Ethics (ETCO).

After 11 years, participation of the informal economy grows again in GDP

po MÁRCIA DE CHIARA - THE STATE OF S.PAULO

Slice of informality increased to 16,2% last year, according to the FGV and ETCO indicator

Driven by the crisis, the participation of the informal economy in the Brazilian Gross Domestic Product (GDP) increased again in 2015, after 11 years of consecutive falls. Last year, the share of the underground economy in all the wealth generated in the country was 16,2%, points out the Underground Economy Index (HEI), ascertained by the Brazilian Institute of Economics (Ibre) of the Getúlio Vargas Foundation (FGV), in partnership with the Brazilian Institute of Competition Ethics (ETCO). In absolute numbers, R $ 956,8 billion of wealth was generated informally last year.

KNOW MORE: UNDERSTAND THE UNDERGROUND ECONOMY INDEX (HEI)

In 2003, when the indicator started to be calculated, the underground economy accounted for 21% of GDP. Since then, IES fell year on year and reached 16,1% in 2014. Last year, due to the crisis, there was a reversal of the fall: the underground economy had a slight growth and advanced 0,1 percentage point in the compared to 2014. According to FGV, the underground economy includes the production of goods and services not declared to the government to evade taxes and contributions in order to reduce costs.

"The vigor of the crisis affected the entire economy, including the underground economy, which registered growth," observes Fernando de Holanda Barbosa Filho, a researcher at Ibre / FGV and responsible for the indicator.

The economist says he expected a higher increase in the indicator, which, according to him, was mitigated by a certain resistance in the labor market. The shadow economy index is calculated from two groups of indicators. One of them is the population's demand for cash, which normally grows when informality increases, as this is a way of circumventing the tax authorities. The other group is the indicator of informal work.

Barbosa Filho explains that the demand for cash grew from 2014 to 2015, but the informality of work was practically stabilized. "As it took time for the labor market to worsen, the increase in the informal economy's share of GDP was only 0,1 percentage point," says the economist.

For this year, he expects a greater advance in the share of the informal economy in the Brazilian GDP. Anyway, after the crisis, Barbosa Filho believes that the share of the underground economy in GDP should fall again because, in his assessment, the institutions to reduce the size of the underground economy continued to function. "What led to this increase in informality was the size of the crisis."

Simple. Looking at the indicator for a longer period, ETCO's executive president, Evandro Guimarães, makes a different analysis. He notes, for example, that since 2012 the shadow economy indicator has been around 16% of GDP, which, in his opinion, signals a certain stabilization.

“The rate of decline in the shadow economy, which had been systematically pointing to a significant reduction, stopped falling as it did before”, says Guimarães. Between 2003 and 2012, the reduction in the shadow economy's share of GDP was five percentage points. The ETCO president points out that some institutional mechanisms that helped in this reduction are being “expired”.

Among these mechanisms, he points to the implementation of Simples and individual micro-enterprise (MEI). “Also other employment and income efforts that have lost their relative effectiveness at the moment,” he says. For Guimarães, Simples is no longer a vigorous instrument of formalization. “The fact that the company is in Simples does not mean that it has 100% of the operation formalized. We have always seen in the news and in real life that companies that adhere to Simples also have a share of informality in their operations. ”

The ETCO president defends a re-evaluation of the inspection instruments. “We perceive a small real effort to evaluate the existing mechanisms.”

Article published in the newspaper O Estado de São Paulo, on 28/06/2016.

Underground economy to grow again after 11 years

Crisis makes underground economy grow after 11 years, point ETCO and FGV / IBRE

Study shows that the informal market moved R $ 957 billion in 2015, corresponding to 16,2% of the Brazilian GDP

The economic crisis that the country is going through does not only result in a drop in GDP (Gross Domestic Product) or an increase in unemployment levels. It has also proved to be a strong driver of the resumption of growth in the informal market, which grew for the first time since 2004. This is what the Underground Economy Index (IES) points out, released by the Brazilian Institute of Ethics in Competition (ETCO), together with the Brazilian Institute of Economics of Fundação Getulio Vargas (FGV / IBRE).

The underground economy is the production of goods and services not reported to the government deliberately to evade taxes, evade social security contributions, circumvent compliance with labor laws and regulations and avoid costs arising from complying with the rules applicable to each activity.

Since the index was created, this is the first time that the study shows a reversal of the trend. Until 2014, the Underground Economy Index had a gradual decline each year, from 21% of GDP in 2003 to 16,1% in the previous survey. According to the study by ETCO and FGV / IBRE, in 2015, the informal market moved R $ 957 billion, corresponding to 16,2% of the Brazilian GDP, which represents an increase of 0,1 percentage point in relation to the previous measurement .

IES TABLE 2015

 

For FGV / IBRE researcher, Fernando de Holanda Barbosa Filho, the result is directly linked to the 2015 macroeconomic scenario. “The economy is slowing down, as well as credit, which directly impacts formal work, which naturally falls, giving way informality ”, he explains. According to him, the result is not only worse thanks to the consolidation of measures to combat informality.

ETCO's Executive President, Evandro Guimarães, also emphasizes the importance of continuing public policies to contain informality, such as tax relief, expanding the use of electronic invoices, reducing bureaucracy in tax processes and measures aimed at small business owners. “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 ”, he explains.

 

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 Getúlio Vargas Foundation (FGV / IBRE), has been publishing since 2007 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.