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Italy to Include Prostitution and Illegal Drugs in GDP

We have blogged before about the world’s shadow economy, and its estimated worth. Turkish economists Ceyhun Elgin and Oguz Oztunali estimate that off-the-books transactions account for roughly 23 percent of world GDP (short versionfull paper).

Bloomberg reports that Italy will now begin including its shadow economy in the country’s GDP, in an effort to reduce the national deficit:

Italy will include prostitution and illegal drug sales in the gross domestic product calculation this year, a boost for its chronically stagnant economy and Prime Minister Matteo Renzi’s effort to meet deficit targets.

Drugs, prostitution and smuggling will be part of GDP as of 2014 and prior-year figures will be adjusted to reflect the change in methodology, the Istat national statistics office said today. The revision was made to comply with European Union rules, it said.

Renzi, 39, is committed to narrowing Italy’s deficit to 2.6 percent of GDP this year, a task that’s easier if output is boosted by portions of the underground economy that previously went uncounted. Four recessions in the last 13 years left Italy’s GDP at 1.56 trillion euros ($2.13 trillion) last year, 2 percent lower than in 2001 after adjusting for inflation.

For more on shadow economies, check out our podcast on the subject.

(HT: Van Brenner)