Sex and Drugs and Italy’s GDP

EI-CH575_OUTLOO_NS_20140608150304The Italian statistical body recently announced that it will include prostitution, drug trafficking, and alcohol-and-tobacco in its calculation of GDP. However Italy is just complying with international accounting standards and reporting illegal economically productive activity is required under European Union rules. But as it is part of the informal economy how do you actually measure drug deals, prostitution etc and therefore its contribution to a country’s GDP?

Holland’s Coffee Shops

Coffeeshops are establishments in Holland where the sale of cannabis for personal consumption by the public is tolerated by the local authorities. Holland already counts cannabis sales as coffee-shop revenues and the EU is looking for greater comparability in the GDP figures which is used to distribute funds from the EU budget. Therefore member states who have a high percentage of their GDP in illegal activities will have their assistance from the EU reduced. See graph from Wall Street Journal.

Countries like Columbia have traditionally had a very large informal economy – drug trafficking – and it is estimated that between 1980 and 2012 that shadow activity varied between 27% and 56% of GDP.

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