Measuring Economic Activity in the Presence of Superstar MNEs

(Accepted, Economic Letters) The Finance Act of 2015 introduced Irish residency, foreign-owned status to a number of large firms that otherwise functioned as “Stateless” while maintaining minimal effective tax rates on profits earned internationally. In tandem with this change came a +25% increase in GDP.

With these changes Irish GDP has become unpredictable, national accounting workarounds seem to be inadequate and a lack of vision of domestic activity available to policymakers hampers countercyclical fiscal action.

We seek to address these issues by calibrating a dynamic factor model that can separately identify domestic economic activity and this distortionary foreign-owned superstar firm activity. More details to come over Summer 2021.