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Italy to include drug traffic, prostitution and smuggling in GDP

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Staff writer ▼ | May 26, 2014
Italy parliamentThe Italian government will include revenue from drug traffic, prostitution and smuggling while calculating its gross domestic product (GDP) in a bid to boost its shaky economy.


Starting this October, Italy will include revenues from "the illegal activities: drug trafficking, prostitution and smuggling services (cigarettes or alcohol)" to its GDP, the country’s national statistics office said, according to RT.com.

"The methodology for estimating the economic dimension of these activities will be consistent with the guidelines established by Eurostat," it added.

The move may add up to 2 per cent to Italy's GDP, European Union's statistical service, Eurostat, earlier predicted. This should bring the country’s new government under Prime Minister Matteo Renzi closer to its goal - reaching strong growth and lowering the public debt, which the EU says is now "the major challenge".

The change in methodology initially comes from the EU, which back in January, set new rules forcing its member-states to track the value of all activities that produce income, including criminal activities like "production and consumption of drugs", prostitution and black market alcohol and cigarette sales.

Eurostat issued its guideline on how to count such "illegal" revenues. Thus, it recommends that the figure for prostitution (to be included under "services") be calculated from approximating the "supply" side and the drug trade from the "demand" side.

Italy’s Istat admits that calculating such income will be "very difficult for the obvious reason as these illegal activities are not reported."

Last time Italy calculated the size of "grey of businesses" that do not pay taxes was in 2008, when it was said to be worth between 16.3 per cent and 17.5 per cent of the economy.

Spain, where the size of "grey economy" is estimated 19.2 percent, announced the switch to the new method back in January, when Eurostat proposed it. By including illegal activities, Spain expects to add about €10 billion to GDP in 2014.

Among other countries that turned to the EU method is Britain, where drugs and prostitution is expected to add over $13 billion to GDP.

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