The McKinsey Quarterly: The gray market thrives in Brazil, where the informal economy generates nearly 40 percent of the national income. Many companies don't pay their taxes and ignore regulations, thereby gaining an unfair advantage over their law-abiding counterparts while hurting the nation's productivity. Brazil's onerous bureaucracy is partly to blame: burdensome regulations, high taxes, and weak enforcement conspire to encourage evasion because the benefits outweigh the relatively small possibility and cost of being caught.

The take-away: Brazil's economy could grow by an additional 1.5 percent a year if its government launched a concerted effort to reduce the size of the gray market, as many other countries have succeeded in doing. Click here to read the story.

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