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Federal Reserve Bank of Minneapolis
Working Papers
Offshore Profit Shifting and Domestic Productivity Measurement
Fatih Guvenen
Raymond J. Mataloni Jr.
Dylan G. Rassier
Kim J. Ruhl
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.


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Fatih Guvenen & Raymond J. Mataloni Jr. & Dylan G. Rassier & Kim J. Ruhl, Offshore Profit Shifting and Domestic Productivity Measurement, Federal Reserve Bank of Minneapolis, Working Papers 751, 24 Apr 2018.
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Keywords: Tax havens; Formulary apportionment; Productivity slowdown
DOI: 10.21034/wp.751
For corrections, contact Jannelle Ruswick ()
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