Sex, drugs and GDP

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Italy’s inclusion of illicit activities in its figures excites much interest
THE announcement on May 22nd by Istat, Italy’s statistical body, that from October it would include drug trafficking, prostitution, and alcohol-and-tobacco smuggling in its economic-output numbers has generated a stream of sniggering headlines. To some, it smacks of 1987, when Italy started taking account of its shadow economy, the off-the-books business which makes up about a fifth of Italian GDP. As a result, the economy grew by 18% overnight, surging past Britain to be the West’s fourth-largest economy. The event was hailed as il sorpasso (the overtaking) and the source of much national joy, until two decades of economic mismanagement sent Italy tumbling back down the league tables.

In fact, then as now, Italy was merely one of the first countries to announce its compliance with international accounting standards. Reporting illegal economically productive activity in which all parties take part voluntarily is required under EU rules known as the European System of Accounts (ESA). But as the guidelines have not so far outlined how to measure drug deals and fake cigarettes, and as such things are by their nature difficult to gauge, few countries comply.
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That will change from this autumn, when an update of the ESA will refresh guidelines on calculating revenues from the seedier side of the economy.

Some countries already include dope and bootleg booze in their statistics: in the Netherlands, for example, cannabis sales may be counted as coffee-shop revenues.
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So the aim is to create greater comparability in the GDP figures of member states, in part because this is the basis on which EU funds are distributed. Though cocaine-fuelled GDP stats will in theory reduce the subsidies Italy is entitled to, it will at least push ever-so-closer to (though still very far from) meeting euro-zone rules on government indebtedness and deficits.

Insee, France’s statistical body, estimates that the ESA’s update will lead to an increase in French GDP of 3.2%— equivalent to a couple of years’ growth at current rates. But little of that is due to an uptick in debauchery: the accounting rule update also reclassifies research and development as an investment rather than a cost, among other things which will attract rather less public attention.
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Britain’s Office of National Statistics was due to release its estimate of the new rules’ impact as The Economist went to press. Italy is still working on its figures, but the treasury says effects will be negligible.

Gian Paolo Oneto, director of Istat’s national-accounts department, admits that tracking such activities is a difficult business, but notes that Italy was a pioneer in estimating the shadow economy: the methodologies it introduced before the sorpasso subsequently became a point of reference.
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Enrico Giovannini, a professor of economic statistics at the University of Rome and a former Istat president, quips that non-statisticians often suggest that measuring happiness and well-being is a tricky task. His response: “Have you ever tried to measure GDP?”

The Economist and other sources

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