Offshore Profit Shifting and Domestic Productivity Measurement

Fatih Guvenen, Raymond J. Mataloni Jr., Dylan G. Rassier and Kim Ruhl

No 751, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: Official statistics display a significant slowdown in U.S. aggregate productivity growth that begins in 2004. We show how offshore profit shifting by U.S. multinational enterprises affects GDP and, thus, productivity measurement. Under international statistical guidelines, profit shifting causes part of U.S. production generated by multinationals to be excluded from official measures of U.S. production. Profit shifting has increased significantly since the mid-1990s, resulting in lower measures of U.S. aggregate productivity growth. We construct an alternative measure of value added that adjusts for profit shifting. The adjustments raise aggregate productivity growth rates by 0.09 percent annually for 1994-2004, 0.24 percent annually for 2004-2008, and lowers annual aggregate productivity growth rates by 0.09 percent after 2008. Our adjustments mitigate, but do not eliminate, the measured productivity slowdown. The adjustments are especially large in R&D-intensive industries, which most likely produce intangible assets that facilitate profit shifting. The adjustments boost value added in these industries by as much as 8 percent in the mid-2000s.

Keywords: tax havens; Formulary apportionment; Productivity slowdown (search for similar items in EconPapers)
JEL-codes: E01 F23 O4 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2018-04-24
New Economics Papers: this item is included in nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Offshore Profit Shifting and Domestic Productivity Measurement (2017)
Working Paper: Offshore Profit Shifting and Domestic Productivity Measurement (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:751

DOI: 10.21034/wp.751

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