Study: Brazil’s informal economy stifling productivity growth

Brian Asher – The Wall Street Journal, 07/05/2012

SAO PAULO–Brazil’s informal economy has lost ground as a share of gross domestic product in recent years, but that trend may be slowing, according to Brazil’s Getulio Vargas Foundation.

Businesses that evade taxes and regulations now account for only 17% of Brazil’s gross domestic product, down from 21% in 2003, according to the foundation’s annual Underground Economy Index, published this week.

Economist Fernando Barbosa, the author of the study, said a tight labor market and growing credit availability have prompted many businesses and workers to move into the formal economy, but these factors are losing momentum.

“Despite the weak growth of the economy, the formal employment market has grown significantly,” said Mr. Barbosa. “Our prediction is that employment is at its limit and will see minimal gains from 2012 onwards.”

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