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Offshore Profit Shifting and Domestic Productivity Measurement

Author

Listed:
  • Raymond Mataloni

    (U.S. Department of Commerce)

  • Kim Ruhl

    (New York University Stern School of Busi)

  • Dylan Rassier

    (Bureau of Economic Analysis)

  • Fatih Guvenen

    (University of Minnesota)

Abstract

U.S. labor productivity growth has slowed considerably, falling from 2.2 percent per year in 2000–04 to 0.63 percent per year in 2004–07. This slowdown took place primarily in sectors that either produce or use information technology (IT) services. At about the same time, U.S. multinational enterprises (MNEs) were accumulating considerable overseas earnings that were not being repatriated to the United States, distorting the return to intangible investments made in the United States. In this paper we ask: To what extent is the mismeasurement of MNE production responsible for the measured slowdown in productivity growth? Our preliminary results show that adjusting for the overseas production shifting of U.S. MNEs has a significant impact on measured productivity, particularly in IT-related industries that are research-and-development intensive — the industries that Fernald (2014) finds most responsible for the aggregate productivity slowdown. In the R&D intensive industries, our adjustment adds 5.1 percentage points to cumulative labor productivity growth in 1973–2014, and in IT-related R&D intensive industries, the cumulative gain in labor productivity is 4.5 percentage points. Notably, most of our adjustment happens after 2004, the period in which unadjusted productivity slows down.

Suggested Citation

  • Raymond Mataloni & Kim Ruhl & Dylan Rassier & Fatih Guvenen, 2016. "Offshore Profit Shifting and Domestic Productivity Measurement," 2016 Meeting Papers 1382, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:1382
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, pages 285-293.
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    5. Clemens Fuest & Thomas Hemmelgarn & 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, pages 605-626.
    6. 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.
    7. Anand, Bharat N. & Sansing, Richard, 2000. "The Weighting Game: Formula Apportionment as an Instrument of Public Policy," National Tax Journal, National Tax Association, pages 183-200.
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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, pages 1-19.
    2. 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.
    3. Alexander Murray, 2017. "What Explains the Post-2004 U.S.Productivity Slowdown?," CSLS Research Reports 2017-05, Centre for the Study of Living Standards.

    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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