Are prostitution, drug trafficking and other types of activities prohibited by law taken into account when calculating Russia's GDP?

Are prostitution, drug trafficking and other types of activities prohibited by law taken into account when calculating Russia's GDP?

The End of Trust. Satyajit Das

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answers (4)

Answer 1
January, 2021

Statistical agencies call the shadow economy unobservable. It, in turn, is divided, roughly speaking, into shadow (non-criminal unregistered business) and criminal (examples from the question). Some statistical agencies try to register crime, but there are not many of them. Rosstat registers only an approximate share of the shadow economy. For those interested in the topic, I highly recommend the research of the Khamovniki Foundation - incredible data. Here is what the Rosstat comments to the SNA say about the non-observed sector:

Rosstat performs assessments that cover legal activities undertaken in the non-observed economy. This activity includes, in a broad sense, actions for which data are not included in the reports or - underestimated data of production units for evasion of official costs, payment of taxes and administrative control. It also covers underreporting due to inaccuracies in the formal data collection process.

The valuation process is based on balance sheet method or the use of data from indirect sources.

The following major activities: retail, construction and agriculture. The calculation of retail trade data is based on statistical observation of the unincorporated trade sector (markets and individual entrepreneurs), which provides information on the average revenue per trader, and the actual unobserved activity - the volume of underreporting trade turnover. The amount of underreporting is determined by using various types of related information to find its share in retail turnover.

The estimate of the non-observed economy in construction is based on a comparison of construction output calculated on the basis of data on the resources of building materials and their use in construction. and estimates of construction output derived from annual survey data.

Agricultural output by households is estimated from a rural household survey, which provides information on average production per hectare and total cultivated area.

The GDP adjustment for the non-observed economy is about 15 percent. Adjustments do not include domestic help

Answer 2
January, 2021

No, they are not taken into account.

Firstly, due to the fact that there are no statistics on these types of activities.

Secondly, despite the growth of formal indicators when the shadow economy in GDP, most likely the voters will have questions to the authorities of the following type: "Why, in principle, are there such types of activities on the territory of the Russian Federation that are more and more carried out in such a volume?"

Answer 3
January, 2021

There are several methods for calculating GDP: Value Added Method, Method of Calculation by Income or Expenditure, etc. The GDP will be determined depending on how to calculate it. Naturally, governments are tempted to include in the calculation of GDP and the illegal economy, in particular the sale of drugs and prostitution, thereby increasing GDP and demonstrating their success. For example, elections are coming soon, you include the sale of cocaine and prostitutes in the calculation of GDP, your GDP grows by several percent and you are announced to your voters, look how good we are, during the time our party is in power, the GDP grows, vote for us.

It may seem like a grotesque exaggeration, but in 2014 Italy did it. The inclusion of prostitution and drugs in GDP allowed Italy to reduce overall budget deficits, as required by EU rules.

Here's the Bloomberg article on this step.

bloomberg.comTherefore, most countries do not take these areas into account when calculating GDP, (there are also technical difficulties because organized crime is not very happy to share information with organizations that calculate GDP) but they can be included there if desired.

Answer 4
January, 2021

If these indicators were taken into account, then instead of a drop in GDP, we saw stable growth, although we did not live better, especially state employees, because taxes are not taken from these types of activities.

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