Ireland’s Miraculous Economic Growth

The reason for the description of Ireland’s miraculous economic growth in 2015 was the astonishment of many observers that a statistical office such as the one in Dublin dared to present completely “absurd” figures on Ireland’s economic development to the public. This situation could only be explained by the fact that the statistics were not sufficiently prepared for the challenge of digitalisation and globalisation and still do not offer satisfactory solutions. Although the inconsistencies in the Irish figures have been illuminated to some extent in the course of the work of a commission and the many explanations provided by the Central Statistics Office (CSO) of Ireland, there remains a certain unease that the statistical methods chosen so far do not do justice to the problem. The CSO pointed out that the data revision was caused by a small number of companies moving assets to Ireland. This was due to a variety of factors in the Irish economy: (a) the term ‘tax inversion’ describes a strategy of moving a company’s headquarters to another country; (b) patents of multinational companies are transferred to Ireland so that royalties are accounted for as Irish exports. Profits can also be shifted, in the form of transfer pricing, from own branches abroad to Ireland through appropriate pricing of royalties; (c) aircraft used world-wide are officially based in Ireland and lent to airlines for a fee. Leasing fees, depreciation and replacement investments are therefore charged to the Irish economy without the aircraft ever having to land in Ireland; and (d) a multinational company based in Ireland awards manufacturing contracts to formally independent companies abroad. The goods produced abroad are then often resold directly abroad. These deals inflate Irish imports and exports without Irish workers ever having to meet the products. However, the profits are taxed in Ireland. These methods of taxation affect a wide range of macroeconomic variables. Critics complain that the increase of real GDP in 2015 was distorted due to special statistical effects. They argue that GDP is not very meaningful for Ireland because it includes income generated domestically, most of which benefits recipients based abroad. Therefore, the CSO began to make certain modifications to the calculation of gross domestic product and to remove significant influences of globalisation from this figure. It is certainly worth considering using net concepts, such as net disposable income or household consumption expenditure—as the Irish case shows.