Jobs and fiction: identifying the effect of corporate tax avoidance inflating export measures in Ireland

Abstract

Ireland’s emergence as a European hub for ICT and pharmaceutical multinationals highlights the growing tension between spatially dispersed economic activity and the nation-centered measures used to monitor it. While ‘big tech’ and ‘big pharma’ are often praised as powerful growth engines, their real contribution to the Irish economy remains unclear, as corporate tax avoidance artificially inflates statistics. By moving around intellectual property assets or engaging in factoryless manufacturing, firms go out of their way to book their profits in low-tax jurisdictions. Their products show up in Irish GDP and export figures, often without employing any Irish labour or capital in the production process. This article uses a novel empirical approach to distinguish job-sustaining economic activity from accounting fiction. By contrasting traditional measures of economic growth on a sectoral level with the growth of employment and earnings, it identifies sectors with sudden discrepancies that are indicative signs of fictitious activity. Discrepancies cluster in the industries dominated by US-based multinationals.

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