The researcher at the Brazilian Institute of Economics of the Getúlio Vargas Foundation (IBRE / FGV) Fernando de Holanda Barbosa Filho, responsible for the Underground Economy Index, talks about the study and its impacts on society. Barbosa Filho has a degree in economics from the Federal University of Rio de Janeiro, a master's degree from the Graduate School of Economics and a doctorate from New York University. Currently, he is also a professor at FGV.

Why is it important to measure the Shadow Economy Index?

The measurement of the index is very important, mainly because it discovers the size of an economy that is outside the formality. This means that the tax burden as a fraction of GDP would be less than what we observed, as there is a part of the product not captured. The tax base is smaller, that is, the government is charging a very high fee, which a good part of the population is not paying. If all people contributed to the payment of taxes, through formalization, the tax burden would be much less. Through the index it is possible to make tangible and to know the size of what you do not know, since the research reduces the ignorance of something important. An informal economy equivalent to the size of Argentina cannot be overlooked. We need to take advantage of this study to develop actions that bring an important portion of our product to formality. Certainly, informality is just a symptom of a disease that causes people to act informally.

What are the factors that most contribute to the underground economy?

The high tax burden and excessive regulation are factors that, if we are not careful, end up harming the economy. Another important factor, which encourages people not to leave informality, is corruption. We need to pay attention to the fact that corruption works on two ends. The first is a social justification, due to the fact that the taxes collected are often not invested in investments through public policies in other sectors of society, such as education, health, basic sanitation, among others. And, on the other hand, when the individual thinks he will be caught as a tax evader, he often appeals to the agent he supervises, and this works. There are several channels, and it is this set of factors that simultaneously affects the Brazilian economy.

What is the method of calculating the index?

There are two combined methodologies: the monetary method (a currency demand equation is estimated) and informality in the labor market (based on data from PNAD). From these data, an average is calculated between the two ways of estimating what is intangible. Obtaining this estimate is an exceptional advance and answers one of the main questions, namely, measuring how much is produced in the Brazilian underground economy and comparing this with other indicators, obtaining a concrete order of magnitude.

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