Unfortunately, the estimate presented in the recent post according to which, from the last half of the decade up to 2012, the tax revenue has raised in Italy by 124 billion while nominal GDP increased by only 128 billion, so the additional revenue appears to have absorbed 97% most of the GDP, should be considered optimistic.
It does not take into account the distinction, within the GDP, between the directly observable component, as it’s formed under the sun, and the submerged GDP.
Submerged economy derives from the production of goods and services which, even though legal, escapes from direct observation as connected to tax and contribution fraud. Such component is already included in the estimate off the GDP and in the economic aggregates currently published by Istat every year on the 1st day of march.
This entails that the growth of GDP in the considered period is mostly due to the variation in the submerged GDP, and partly to the variation of the visible economy, but the latter the higher tax revenue should be correctly related. It is then appropriate to redo the calculations, splitting the GDP variation in two components: the submerged GDP increase, and the “en plein air” GDP growth.
The analysis is extended to 2012 with the recent data forecast in the DEF update. Since 2012 the repartition of the GDP between “observed” and “submerged” is made available by Istat (adopting the average value between the lower and the maximum hypothesis of submerged GDP).
Hence the “emerged” GDP is the difference between the total GDP and the average evaluation of the submerged component.
After 2008 the weight of the submerged has been prudentially calculated at 16.8% of the unchanged value of 2008, even if the severe recession and the taxes increase have most likely increased it.
As shown in the grid below, according the previous assumptions the nominal GDP from 2005 to 2013 will be increased by 146 billion, 25 of which referable (in the prudential hypothesis) to the growth of the submerged economy.
The growth of the non-submerged GDP is then limited to 121 billions, against an increase of the tax revenue of 141 billions in the same period. The higher revenue will have then absorbed 116% of the higher non-sumberged GDP formed over the past 8 years.
- Variation of the GDP, submerged or visible, and tax revenue (billions of euros)
The previous evaluation is the result of a prudential hypothesis, then it should be meant as the higher revenue will have absorbed at least 116% of the higher visible GDP produced and submitted to the tough fiscal pressure, but in this case we must say fiscal expropriation.
Instead, in the more realistic hypothesis that the weight of the submerged over the GDP has grown during the years of the crisis, such value will turn out to be much higher and reach seriously worrying figures.
I end with two questions:
Q1 : Why Istat does not swiftly releases the data of the submerged economy, but has a four years lag? Since the whole is a sum of the parts, and the total GDP is by definition (Eurostat) the sum of the visible and the submerged, why Istat informs every trimester and year about the whole, but not about the two parts?
Q2 : Since all the possible realistic hypothesis show that over the past eight years the IRS took from the taxpayers who produce the visible GDP much more than the higher GDP that they produced, one wonders why they should try to produce more GDP over the next years. Which incentives they have from the state, to not facilitate and accelerate the italian decline?
Translation by Giuseppe Jordan Tagliabue
Original Article by Ugo Arrigo from Chicago-blog