Tag: Underground Economy Index

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.

 

 

Formalization pulled tax revenue, says FGV

The formalization of the economy registered in recent years has caused tax revenue to grow at a faster rate than that of productive activity, according to a researcher from the Brazilian Institute of Economics of the Getulio Vargas Foundation (Ibre / FGV) and responsible for the Underground Economy Index (IES) , Samuel Pessôa. "My interpretation is that this increase in tax revenue was higher than the GDP growth because of the formalization."

Despite this increase, Pessôa points out that this revenue gain was not used to reduce the tax burden as a whole. “We use this gain in tax revenue to increase public spending on various programs that society has decided should exist. It was a society decision. ”

Anyway, the Ibre / FGV researcher says that, if the informality in the Brazilian economy were lower, the tax burden could also fall. This means that, in their accounts, the tax burden in relation to the Gross Domestic Product (GDP), today around 40%, could be reduced by two or three percentage points, to something between 37% and 38% of GDP, only due to the drop in informality.

Calculation

The underground economy indicator, calculated by Ibre / FGV and the Brazilian Institute of Ethics in Competition (ETCO), which is an attempt to measure the informality of economic activity, takes into account the behavior of the market of labor and demand for currency in the economy, since a large part of informal activities are handled using cash.

Pessoa explains that the HEI is calculated from an average between the currency demand indicator and the market of work. "IES is a flag, it is not an exact number", he stresses, considering the difficulties of measuring the informal economy. The information is from the newspaper The State of S. Paulo.

Source: Site Last Instance (25/06)

Brazil stops reducing informality

After 12 years of falling, the Underground Economy Index stops due to the recession and the increase in taxes

 

GRAPHIC IES

The ETCO-Brazilian Institute of Ethics in Competition and the Brazilian Institute of Economics of the Getulio Vargas Foundation (IBRE / FGV) released on November 30 the Subterranean Economy Index (IES) for 2015. According to the survey, the informal market will move R $ 932,3 billion this year. The value represents 16,1% of the Gross Domestic Product (GDP), the same percentage verified in 2014. The IES measures the size of activities not declared to the public power, such as smuggling, piracy, tax evasion and informal employment.

This is the first time, in 12 years of research, that the informal economy has not retracted in the country. During this period, the index decreased by 4,9 percentage points, the result of a set of factors, such as the formalization of employment and the growth of the economy.

Curve change

According to the study's authors, stability in 2015 may mean the start of the change in the index curve. The current economic scenario, which includes economic difficulties, rising unemployment and increasing the tax burden, should increase the participation of the informal economy in the coming years.

Economist Samuel Pessôa, a researcher at IBRE / FGV, explains the upward trend: “The crisis started in the second quarter of 2014 and unemployment only grew strongly this year. It currently stands at 8,9% and is expected to reach 11% next year. It is practically inevitable that part of this workforce will migrate to the informal economy ”. According to Pessôa, as long as the economic situation does not undergo structural adjustments, the tendency is for the index not to fall again.

The ETCO president recalls that the solution that governments have been adopting to face the fiscal crisis, based heavily on tax hikes, ends up further increasing the appeal of the underground economy. “The complexity of the tax burden is another factor that leads to informality”, says Evandro Guimarães.

In highly taxed segments, such as cigarettes, for example, today almost 40% of sales are the result of smuggling. Even so, state governments, like the one in São Paulo, are increasing the tax burden even more.

The partnership between ETCO and IBRE / FGV to monitor the underground economy provides the country with the main indicator of the evolution of informal activities. “Knowing the problem is the first step in order to face it”, explains Evandro Guimarães. According to him, it is important that there are more government initiatives to contain the problem. "We need measures capable of simplifying the tax system, in addition to structural changes in society so that this economic model does not harm those who act within the law, following all the rules and paying all taxes," he says.

How the index is calculated

The IES is defined based on a set of static data that assess informality in employment and the relationship between the size of the economy and the use of cash (underground activities tend to use less bank transfers). One of the main sources of information is the National Household Sample Survey (PNAD).

 

 

 

Informal economy should grow again in the country

Last year, the informal economy generated R $ 816 million, or 16,1% of GDP
Last year, the informal economy generated R $ 816 million, or 16,1% of GDP

After ten years of consecutive declines, the participation of the informal economy in the sum of all the wealth produced in the country, the Gross Domestic Product (GDP), should grow again in the next two years due to the strong adjustment in economic activity, which has already is reflected in the increase in unemployment.

By Marcia de Chiara - The State of São Paulo (25/06/2015)

To read the full story, click here

 

Fall in informality loses strength due to the economy

informal economy

São Paulo, June 25, 2015 - The Underground Economy Index (IES), released today by the Brazilian Institute of Competitive Ethics - ETCO together with the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV / IBRE), showed that the informal market moved R $ 826 billion in 2014 This figure represents 16,1% of the country's Gross Domestic Product (GDP) and points to a slight reduction of 0,2 percentage point in relation to the previous year.

The analysis is that the drop in informality has been losing strength due to the stagnation of the economy. “The economic slowdown started at the end of last year, so that the results of the crisis will only be really felt in its next edition, referring to the year 2015. The measures taken by the government to combat informality, such as the exemption of some sectors of the economy and policies aimed at small business owners, although effective, are not enough to curb informality in this scenario ”analyzes Samuel Pessoa, a researcher at FGV / IBRE.

In absolute values ​​and updated prices, in 2014 there was a drop of only 1% in the index, which corresponds to the production of goods and services not deliberately reported to the government and, therefore, is outside the national GDP. Last year, this amount totaled R $ 835 billion.

In the past ten years, the Shadow Economy Index has dropped 4,8 percentage points. With the exception of 2009 - an atypical year for the economy due to the global crisis - from 2007 onwards, the HEI dropped 0,7 pp, from 20,2% in 2006 to 17% in 2011. The years 2012 and 2013 were marked by the beginning of the deceleration process, a direct consequence of the sharp drop in the number of formal hires by the industry and growth in the service sector, which has higher levels of informality than the industry. 2014 stands out for being the year in which the Index revealed, for the first time, an almost stagnation in the rate of decline of the underground economy in the Country, in its relationship with the Gross Domestic Product (GDP).

table_2

“In order for us to resume the significant drop in informality, it is essential to seek measures capable of simplifying and rationalizing the tax system; modernize the collection system and make compliance with the law less painful for the population. It is also necessary to continue and accelerate the structural changes that we seek for society, such as, for example, increasing the educational level and reducing the unemployment rate, ”says Evandro Guimarães, ETCO's Executive President.

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 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.

 

 

Underground economy falls little in 2014 and should grow again in the country

ETCO and FGV / IBRE study shows that the informal market moved R $ 826 billion in 2014, equivalent to 16,1% of the Brazilian GDP

Watch the article that deals with the latest edition of the Underground Economy Index (HEI), released by ETCO in conjunction with the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV/IBRE). According to the study, the informal market, which corresponds to the production of goods and services not deliberately reported to the government, moved BRL 826 billion in 2014, a value that corresponds to 16,1% of the Gross Domestic Product (GDP) of the country and points to a slight reduction of 0,2 percentage point in relation to the previous year.  

Informality stops falling

The underground economy, that is, the set of activities intentionally not reported to the government in Brazil, has been shrinking year after year, since it was estimated in 2003 by the Brazilian Institute of Ethics in Competition (ETCO) in partnership with the Brazilian Institute Economics of Fundação Getúlio Vargas (FGV / IBRE). This reduction is credited to the improvement of the institutional environment, which has benefited in recent years from advances in the performance of the economy and other factors that contributed to the formalization of companies and employment ties.

In the most recent estimate of the institutes, released on the 12th, however, a worrying trend was observed. The 2014 Underground Economy Index was estimated at 16,2% of GDP, just 0,1 percentage point lower than that measured in 2013. In absolute numbers, it is R $ 833 billion, compared to R $ 787 billion in 2013. This is the smallest reduction in the index ever seen since the beginning of the survey (in 2003, the index was 21%). According to the experts responsible for the index, the trend for the coming months is that the pace of decline in informality will slow down, especially if the economic growth forecasts observed so far are confirmed.

The trend towards stabilization in the reduction of informality indicates that some corrections are necessary at this time. If, until now, tax exemptions promoted to alleviate the tax burden in various sectors have collaborated with the formalization of the economy, from this moment on, tax simplification may have a more comprehensive role in reducing informality. There is no denying the importance of exemptions for the economy as a whole. But, as far as can be seen, its effectiveness with regard to formalization tends to stabilize. Thus, tax simplification can enhance the effects of tax relief more broadly on the productive sectors of the economy.

It is also necessary to continue and accelerate the structural changes that we seek for society, such as, for example, increasing the educational level and reducing the unemployment rate. The growth of the formal labor market is close to its limit. Two major bottlenecks hinder the continuity of this evolution. One of them, well known, is the labor laws that bind the economy. The other, less obvious, but with a lot of impact on reducing informality, is the level of education of Brazilians.

In the past decade, informality in the labor market has dropped by more than 10 percentage points, from 33% to less than 22% of the total employed population. The increase in the average education level of Brazilian workers can account for up to 64% of this drop. The positive relationship between schooling and formalization brings positive perspectives with regard to reducing informality in the future.

If, on the one hand, softening rigid labor laws is an increasingly essential mission, investing in education is much more than a goal, it is an obligation for the nation to become more competitive and position itself better among the main economies in the world . Finally, it is necessary to simplify and rationalize the tax system; modernize the collection system and make compliance with the law less painful for the population.

 

*Evandro Guimaraes is executive president of the Brazilian Institute of Ethics in Competition (ETCO) and Fernando de Holanda Barbosa Filho is an economist and researcher at FGV / IBRE