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Offshore Profit Shifting and Domestic Productivity Measurement

Author

Listed:
  • Fatih Guvenen
  • Raymond J. Mataloni Jr.
  • Dylan G. Rassier
  • Kim J. Ruhl

    (Bureau of Economic Analysis)

Abstract

Official statistics display a significant slowdown in U.S. aggregate productivity growth that begins in 2004. In this paper, we investigate a source of mismeasurement in official statistics, which arises from offshore profit shifting by multinational enterprises operating in the United States. This profit shifting causes part of the economic activity generated by these multinationals to be attributed to their foreign affiliates, leading to an understatement of measured U.S. gross domestic product. Profit-shifting activity has increased significantly since the mid-1990s, resulting in an understatement of measured U.S. aggregate productivity growth. We construct adjustments to correct for the effects of profit shifting on measured gross domestic product. The adjustments raise aggregate productivity growth rates by 0.1 percent annually for 1994–2004, 0.25 percent annually for 2004–2008, and leave productivity unchanged after 2008; Our adjustments mitigate, but do not overturn, the productivity slowdown in the official statistics. The adjustments are especially large in R&D-intensive industries, which are most likely to produce intangible assets that are easy to move across borders. The adjustments boost value added in these industries by as much as 8.0 percent annually in the mid-2000s.
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Suggested Citation

  • Fatih Guvenen & Raymond J. Mataloni Jr. & Dylan G. Rassier & Kim J. Ruhl, 2017. "Offshore Profit Shifting and Domestic Productivity Measurement," BEA Working Papers 0139, Bureau of Economic Analysis.
  • Handle: RePEc:bea:wpaper:0139
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    References listed on IDEAS

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    1. Clemens Fuest & Thomas Hemmegarn & Fred Ramb, 2007. "How would the introduction of an EU-wide formula apportionment affect the distribution and size of the corporate tax base? An analysis based on German multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(5), pages 627-629, October.
    2. Anand, Bharat N. & Sansing, Richard, 2000. "The Weighting Game: Formula Apportionment as an Instrument of Public Policy," National Tax Journal, National Tax Association, vol. 53(2), pages 183-200, June.
    3. Anand, Bharat N. & Sansing, Richard, 2000. "The Weighting Game: Formula Apportionment as an Instrument of Public Policy," National Tax Journal, National Tax Association, vol. 53(n. 2), pages 183-200, June.
    4. Altshuler, Rosanne & Grubert, Harry, 2010. "Formula Apportionment: Is It Better Than the Current System and Are There Better Alternatives?," National Tax Journal, National Tax Association, pages 1145-1184.
    5. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-1373, November.
    6. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-293, May.
    7. Harry Grubert & Timothy Goodspeed & Deborah L. Swenson, 1993. "Explaining the Low Taxable Income of Foreign-Controlled Companies in the United States," NBER Chapters,in: Studies in International Taxation, pages 237-276 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Chen, Peter & Karabarbounis, Loukas & Neiman, Brent, 2017. "The global rise of corporate saving," Journal of Monetary Economics, Elsevier, vol. 89(C), pages 1-19.
    2. Alexander Murray, 2017. "What Explains the Post-2004 U.S.Productivity Slowdown?," CSLS Research Reports 2017-05, Centre for the Study of Living Standards.
    3. Erik Brynjolfsson & Daniel Rock & Chad Syverson, 2018. "Artificial Intelligence and the Modern Productivity Paradox: A Clash of Expectations and Statistics," NBER Chapters,in: Economics of Artificial Intelligence National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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