Ireland’s Central Statistics Office updated their 2015 national income figures and revealed a staggering 26.3% increase in real GDP from 2014 to 2015.
Paul Krugman called it “leprechaun economics.”
Joseph Salerno said “that’s unbelievable!”
I say it’s just one more reason to doubt official macroeconomic statistics.
While some initially responded with accusations of duplicitous methods, the CSO assures that the figures were calculated using the standard EU accounting rules, including the reported 34.4% increase in exports and 87.3% increase in industry (!) over the same time period.
The culprit is the large number of corporate inversions and mergers that legally shuffle ownership of taxable revenues and assets to Ireland, where lower tax rates and other laws allow companies like Google keep 94% of their non-US profits from government theft. For comparison, official US corporate tax rates range from 15%–39%, so it’s no wonder why some might prefer to travel on a road with fewer highway robberies.
While many commentators are using this as an opportunity to denounce legal tax avoidance, the main lesson here is that official national income accounting statistics do not portray what many take them to portray.
Most use GDP or GDP per capita to measure how wealthy the citizens of some nation are, how their wealth changes over time, or how wealthy they are compared to other nations. But these applications are spurious for many reasons—no one would say that the average Irish citizen is now 26% wealthier because some multinational corporations filled out some paperwork. No one would say that Ireland actually experienced real economic growth on the order of 26.3%.
What’s more, the large part of the 26% boost to Ireland’s statistics is only possible through a decrease in other countries’ statistics, which calls their data into question, too. Though a few large companies transferring taxable items from the US to Ireland might be a drop in the bucket for the US and a big splash in Ireland, both countries’ GDP figures are going through the same statistical wringer.
In modern times, when the legal ownership of firms and bank accounts can dart across the globe with a simple signature or a press of a button, national income statistics are becoming increasingly meaningless. The problem isn't the globalization, the tax avoidance, or the technology that makes such transfers possible. The problem lies in the figures themselves and their exultation by mainstream economists.
