Friday, June 6th 2014 - 08:02 UTC

Italy planning to boost economy by including shadow economy as part of GDP

Drugs, prostitution and arms smuggling may not be legal, but it's all real economic activity, at least in Italy, which will now include illegal enterprises as part of its gross domestic product (a measure of the goods and services a nation produces). Italy has decided to boost the size of its economy by including the value of black market activities.

A larger GDP means lower debt ratio and helps to borrow more money

Drugs, prostitution and smuggling to be included in the 'creative accounting'

 This new accounting strategy is likely to be not only controversial, but may put the nation's credibility on the line because there is no adequate way to measure or value illegal activities, according to an article published by an economics editor in USA Today.

The expert points to the illegal marijuana industry in the United States, saying it's estimated to be worth between 10 billion and 100 billion dollars a year and it just depends which economist you ask.

“If you're an economist in Italy who needs to make the country's economy look bigger, no doubt you'll want to go with the liberal calculation” according to the article, although “The truth is, no one really knows.”

That could also backfire because the creative accounting may be viewed as an effort to manipulate the nation's GDP and investors could start to dismiss or question Italy's statistics.

While the move may seem unorthodox it's apparently just what the European Union has ordered.

New rules require member nations to report all income-producing activities, including the black market sales of alcohol and cigarettes. No country is supposed to let their annual deficits exceed 3% of GDP or accumulated debt exceed 60% of GDP.

Countries that don't comply with the debt limits are to be penalized — 0.2% of GDP, plus a “variable component” that can range up to 0.5% of GDP annually as long as the breach continues.

Boosting GDP helps lower the debt ratio, but that's not the only incentive Italy has. Theoretically, having a bigger economy should allow the nation to borrow more money.

Italy may be the first nation to include illegal activities in its GDP, but countries inside and outside the Euro zone may want to follow suit. For example Turkish researchers estimate the shadow economy averages just below 18% of GDP in Organization of Economic Co-operation and Development and EU countries and is as high as 42% in some Latin American countries.

3 comments Feed

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1 ChrisR (#) Jun 06th, 2014 - 07:58 pm Report abuse
“For example Turkish researchers estimate the shadow economy averages just below 18% of GDP in Organization of Economic Co-operation and Development and EU countries and is as high as 42% in some Latin American countries.”

Namely The Dark Country (TDC). They are used to making up the figures at INDEC.

Putting “black economy” as part of GDP: despicable act and true to the Mafia running Italy and TDC also, it seems.

As an investor am I impressed with this? Ha, ha, ha.

Uruguay WILL be able to include the marijuana sales: it's legal here!

I think all the world is going absolutely mad, MAD I say!
2 Clyde15 (#) Jun 07th, 2014 - 08:42 am Report abuse
Fine if they decided to pay taxes on their gains.....but they will not.
They will expect the more honest in the EU to continue bankrolling them.
The “olive grove belt” will continue to screw the rest of the taxpayers.
3 Think (#) Jun 07th, 2014 - 09:04 pm Report abuse
TWIMC

Sassenach at (1) says…:
”Putting “black economy” as part of GDP: despicable act and true to the Mafia running Italy and TDC also, it seems.”

Lowlander at (2) says…:
The “Olive Grove Belt” will continue to screw the rest of the taxpayers.

Think at (3) says…:
Meanwhile, in the Turnip Fields of Britain…:
”Financial Times, May 29, 2014…: Britain said on Thursday it would include prostitution and illegal drugs in its official national accounts for the first time. The move is one of the changes planned for September that will add up to 5 per cent to the UK’s gross domestic product.”
www.ft.com/intl/cms/s/2/65704ba0-e730-11e3-88be-00144feabdc0.html#axzz33zOcJEbH

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