Abstract
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.
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Notes
- 1.
Irish national economist Jim Power told Bloomberg news agency on 12 July 2016. The idea for the title of this chapter comes from two newspaper articles: See Hoffmann (2016) and Stocker (2016).
- 2.
Central Statistics Office (2016b).
- 3.
Gross national income is identical to the concept of gross national product (GNP) used in the European System of Accounts 1995 (ESA 1995). The growth rates reported at the beginning of 2020 for 2015 differ slightly from the data published on 12 July 2016, at 25.2% for gross domestic product (GDP) and 13.6% for gross national income (GNI).
- 4.
These are gross tangible assets; Irish net tangible assets increased by 50% from €497 billion to €748 billion over the same period. Under the gross concept, fixed assets remain in the asset portfolio at their full value (replacement value) without taking into account impairment until they are finally withdrawn from the production process. In the net concept, on the other hand, the depreciation accumulated since the time of investment is deducted. See Gühler and Schmalwasser (2019).
- 5.
ESA 2010 (2013).
- 6.
“Perhaps Greece will follow this example”, Die Welt mocked. See Stocker (2016).
- 7.
See Eurostat press release of 12 December 2016.
- 8.
Institute for the World Economy (2016).
- 9.
Institute for the World Economy (2016).
- 10.
Globalisation here is largely limited to economic processes, but the other areas of life are also involved, such as the environment, population, or politics.
- 11.
World Bank, National accounts data, and OECD, National accounts data files.
- 12.
IMF (2019).
- 13.
The UNECE Manual on the Measurement of Global Production (UNECE) (2015) provides extensive practical guidance on the statistical treatment of globalisation effects such as the transfer of intangible assets. It also discusses the so-called factoryless production of goods (also referred to as the “contract manufacturing model”). Additional information is also provided by the Eurostat Manual on the Measurement of Research and Development in ESA 2010 (Eurostat 2014).
- 14.
Huwart and Verdier (2014).
- 15.
In many other countries, tax rates of 30% and more apply.
- 16.
Excluding financial services.
- 17.
For the EU, this figure was around 24%.
- 18.
For the NACE Rev. 2 classification, see European Parliament and Council (2006).
- 19.
In Ireland, the name Anglo Irish Bank is still synonymous with megalomania and greed during the heady years of the Irish economic miracle, which ended abruptly with the financial crisis. The bank managers almost single-handedly drove the Irish state to ruin. Ireland’s politicians pumped a total of around €30 billion into the terminally ill credit institution. See Theurer (2014).
- 20.
Guvenen et al. (2019).
- 21.
de Haan and Haynes (2018).
- 22.
Fitz Gerald (2018).
- 23.
Avdjiev et al. (2018).
- 24.
Central Statistics Office (2018).
- 25.
The Netherlands also faces similar problems, but with a much smaller impact on the balance of payments. See Rojas-Romagosa and van der Horst (2015).
- 26.
Until 1980, no corporate income tax was levied on “exported” profits.
- 27.
Conefrey and Fitz Gerald (2011).
- 28.
See 2008 SNA, ESA 2010 and UNECE (2005).
- 29.
Statistical standards distinguish between transactions, revaluations, and other changes in volume.
- 30.
ESA 2010, 1.90.
- 31.
For data protection reasons, CSO Ireland did not provide details of movements of the investment in research and development.
- 32.
The ESA 2010 has been implemented by all EU Member States.
- 33.
Braakmann and Goldhammer (2018).
- 34.
Balance of payments statistics follow the methodology of the Balance of Payments and International Investment Position Manual, 6th Edition (BPM6); it is largely consistent with the methodology of the 2008 SNA and the ESA 2010. According to this methodology, a transaction is evidenced (in the balance of payments) when there is an exchange of economic ownership of a good or service between a resident and a non-resident. This is the case when a transfer of the opportunities and risks associated with the use of the good has taken place. The foreign trade statistics, on the other hand, depict the physical cross-border trade in goods with foreign countries. The criterion of border crossing is only deviated from if it cannot be applied meaningfully, for example in the case of sea-going vessels and commercial aircraft. In this case, the transfer of ownership is recorded. See on this: Richter (2018).
- 35.
For a more detailed treatment of the issues, see Byrne and O’Brien (2015).
- 36.
In a broader sense, information and communication technology (ICT) refers to any communication application, including radio, television, mobile phones, smartphones, computer and network hardware and software, satellite systems, as well as various related services and applications. It includes publishing, motion picture, sound and radio activities (NACE Rev. 2, classification codes 58-60), telecommunications (61) and information technology and information service activities (62-63). See Regulation (EC) No. 1893/2006.
- 37.
Fees for rights of use, distribution and reproduction are to be recorded as services according to the new standards. User fees for software and audiovisual media are recorded under computer services or within the category of services for personal, cultural, and recreational purposes; all transactions in connection with the right to reproduce and commercially distribute intellectual property, on the other hand, are shown in the new service category of fees for the use of intellectual property. Royalties for the use of research results or of industrial property rights, such as trademark rights, also appear under this heading.
- 38.
van Egeraat and Curran, Spatial Concentration in the Irish Pharmaceutical Industry (2013).
- 39.
Pharmaceutical manufacturers (also referred to as pharmaceutical companies and collectively as the pharmaceutical industry) are companies that produce medicinal products. The spectrum of activities includes research and development for new active substances and dosage forms, the manufacture of medicinal products (original preparations or generics), and marketing under their own name (as marketing authorisation holders or co-distributors).
- 40.
This is measured by exports for the goods group Chemical Products, which largely consists of pharmaceutical products.
- 41.
Siehe: Pharmaceutical Healthcare, Facts and Figures.
- 42.
In 2012, it was estimated that patents with a sales volume of 37 billion US dollars expired worldwide. See German Health News (2012).
- 43.
Fitz Gerald (2018).
- 44.
Fitz Gerald (2018).
- 45.
The asset value of €119 billion is overstated by about 10%, as it still includes an unknown amount of other assets. See CSO (2020).
- 46.
Häring (2016).
- 47.
Gross domestic product (GDP) is the measure of the economic performance of an economy in each period. It measures the value of domestically produced goods and services (value added), insofar as these are not used as inputs to produce other goods and services. GDP is calculated in current prices and price-adjusted (deflation with annually changing prices of the previous year and chaining). Based on the previous year’s prices, the “real” economic development over time is shown free of price influences. The rate of change of the price-adjusted GDP serves as a measure for the economic growth of national economies.
- 48.
See the proposals of the Economic Statistics Review Group (ESGR) in Central Statistics Office (2016c).
- 49.
Voy (2018).
- 50.
Central Statistics Office, Report of the ESGR, December 2016.
- 51.
Moulton and van de Ven (2018).
- 52.
The domestic corporations’ sub-sectors include both the state-controlled and the private corporations.
- 53.
To improve the information content of the national accounts, Rassier proposes a separate recording of the transactions and positions of special purpose entities, as their economic behaviour differs greatly from that of the other economic entities in an economy. However, there are no international plans to identify special separately, although they are already recorded separately in some countries as part of sectoral accounting. The sheer scale of the transactions and positions of these entities often completely distorts the overall picture of an economy. Compare: Rassier (2017).
- 54.
CSO (2020).
- 55.
CSO Ireland does not show detailed asset information for the last years.
- 56.
CSO (2020). See also: Eurostat (2008).
- 57.
See Lipsey (2010), who uses the ratio of profits to wages as an indicator for measuring the foreign dependence of economies.
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Mink, R. (2022). Ireland’s Miraculous Economic Growth. In: Official Statistics—A Plaything of Politics?. Springer, Cham. https://doi.org/10.1007/978-3-031-04624-7_10
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