How US Multinationals Shifting Income To Foreign Countries Reduces Measured GDP

US corporations work their accounting system so that sales and profits turn up in non-U.S. jurisdictions (for example, here’ s description of the Double Irish Dutch Sandwich technique). One implication is that corporations pay lower US and overall taxes; another is that because of this shifting, measured US GDP is smaller than it would otherwise be. 

Karen Dynan and Louise Sheiner provide a nice overview of this mechanism in their essay “GDP as a Measure of Economic Well-being,” written for the Hutchins Center at the Brookings Institutions (Working Paper #43, August 2018). Their paper offers a detailed and readable overview of man problems that arise in measurement of real GDP: problems in measuring the size of the digital economy, problems in adjusting for changes in the size of nonmarket work, and potential biases in the measure of inflation (which in turn lead to errors in estimating the size of the real economy), and others.

Here, I’ll just focus on their comments about how US multinationals shift sales and profits to other countries (footnotes omitted).