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Offshore Profit Shifting and Domestic Productivity Measurement

Listed author(s):
  • 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)

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.

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File URL: https://economicdynamics.org/meetpapers/2016/paper_1382.pdf
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Paper provided by Society for Economic Dynamics in its series 2016 Meeting Papers with number 1382.

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Date of creation: 2016
Handle: RePEc:red:sed016:1382
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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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, vol. 63(4), pages 1145-1184, December.
  3. 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.
  4. 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.
  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, vol. 14(5), pages 605-626, October.
  6. 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.
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