Maintaining Debt Targets and GDP levels in the EU

Amsterdam's famous Red Light District.

Amsterdam’s famous Red Light District.

According to a story published by the New York Times yesterday, the government of Spain is attempting to estimate the contribution of sex work to the Spanish economy. The European Union imposes strict debt targets on its member states, effectively limiting the size of the national debt as a portion of the total size of the economy. So one way to reduce the size of a country’s debt burden—at least on paper—is to increase the size of the economy against which it is measured.

As the New York Times story observes, “accounting for prostitutes and heroin can add billions to an economy. And as some countries try to dig out of the euro zone’s nearly five-year growth slump, every little bit helps.” In the case of Spain, it is estimated that prostitution generates approximately 20 billion euros ($27 billion) per year.

Other countries are similarly attempting to measure informal economic activity, including prostitution and the trade in illicit drugs, as part of a broader effort by the EuroStat to more accurately capture all economic activity in Europe. Most observers believe that the changes, combined with a new accounting measure of research and development investments, could increase the size of the economies of Finland and Sweden by as much as 5 percent. The economies of other countries could see increases of between 2 and 4 percent.

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