Visa report calculates worldwide cost of off-the-books cash-based economy
More than 23 percent of the world's economy operates outside the purview of governments, with the result that more than $10.7 trillion of economic activity annually goes unreported, according to a new study commissioned by Visa.
According to a news release, Digital Payments and the Global Informal Economyis a first-of-its-kind study and report that measures the size of the informal economy across 60 countries over a 10-year period. It additionally explores how digital payments might reduce the size of the informal economy and boost GDP and tax revenue in these countries.
The report argues that the informal economy has wide-reaching negative effects, limiting governments' ability to provide services, damaging business competition, fostering unfair labor practices, and leaving workers vulnerable in an unregulated environment with a limited safety net.
The report finds that "increasing digital payments by 10 percent across all markets studied for five consecutive years can shrink the informal economy from 23 percent of the world's economy down to 19 percent … ," adding as much as $1.5 trillion to global GDP by 2021.
According to the release, many governments around the world are increasingly embracing digital payments as a way to reduce informal transactions. Since 2014, more than 65 percent of government policies aimed at reducing the informal economy have involved measures related to digital payments.
"While informality remains a sizable challenge, shifting transactions from cash to digital payments holds great promise for individuals, businesses, and governments," Ellen Richey, Visa vice chairman and chief risk officer, said in the release. "Digitizing payments can bring an array of benefits, including greater inclusion and stronger economic growth."
The study explores policies that include:
- Encouraging government adoption of digital payments.
- Promoting the use of digital payments by offering value-added tax rebates.
- Subsidizing funds that support the development and expansion of acceptance infrastructure.
- Accelerating the use and acceptance of contactless payments.
For the study, management consulting firm A.T. Kearney analyzed the global informal economy across 60 markets that account for 94 percent of global economic output. Professor Friedrich Schneider of Johannes Kepler University in Linz, Austria, implemented the model to calculate the study's results, using 10 years of data for the decade starting in 2007 and more than 30 variables to calculate the size of the legal informal economy, excluding universally illegal activities, such as human trafficking and the production and trade of illicit drugs and banned weapons.