Ireland Is Not That Well Off

It is widely known that traditional definitions of gross domestic product exaggerate the economic productivity of Ireland (and other tax shelter countries).

Of course, you may have heard that Ireland’s GDP is massively overstated. And indeed it is . . . if you look at a . . . recent graph of Irish GDP, it soars to ridiculous heights — over $100,000 per person. The country is rich, but it’s not that rich.

A recent article in The Economist explains what’s going on. Ireland’s GDP is overstated for two main reasons. First, and most importantly, Ireland is a famous tax haven — its low corporate income tax rates give multinational companies an incentive to book as much of their profit as possible at their Irish subsidiaries. For European companies, this usually required actually relocating their activities to Ireland, but the U.S. has a strange corporate tax system that allows companies like Google and Apple to engage in various other schemes to book profits in Ireland without actually doing anything substantial in the country, inflating Ireland’s GDP. A second piece of weirdness was aircraft leasing, whose statistical treatment doesn’t make a lot of sense.

From here.