A research note published today by the ESRI (Economic and Social Research Institute) suggests that quarterly national accounts data volatility hinders Irish economic forecasting but the paper avoids referring directly to tax avoidance, which is the main causal factor.
"Irish Quarterly Macroeconomic Data, A Volatility Analysis", by Niall Conroy, a researcher at the ESRI, highlights the difficulties faced by forecasters and policymakers when examining changes in the Quarterly National Accounts
The paper says that the Quarterly National Accounts released by the Central Statistics Office (CSO) provide the most comprehensive estimates of Irish economic activity. However, it highlights the volatility in quarter to quarter changes in GDP and GNP. The measured volatility reflects both the underlying volatility in the Irish economy, "but also the difficulty in measuring economic output in a small open economy."
Commenting on the analysis, Niall Conroy, the author, said “Today’s note shows that the volatility in quarterly GNP and GDP in Ireland is amongst the highest in the OECD. We can also see that the high levels of volatility are evident in several sectors of the economy, particularly those with a strong multi-national corporation presence.”
He continued, "While the rate of volatility in quarterly GNP and GDP has been highlighted previously, we can see that volatility is at its highest at potential turning points in the economy. This highlights the difficulties faced by forecasters and policymakers when examining changes in the Quarterly National Accounts.”
In the research note Conroy says that the volatility in the national accounts is no longer solely due to activities in the manufacturing sector. "It is noticeable however, that the two sectors most responsible for the high levels of
volatility have a significant MNC presence."
Conroy refers to a paper that was produced by John FitzGerald in 2013 on redomiciled PLCs, which shows that both GNP and the Balance of Payments is distorted by these faux-Irish companies.
- The mainly American so-called tax inversions are motivated by tax avoidance and in the first quarter of 2015 (CSO to publish data next month), there will be the addition of 2 "Irish" companies with combined payrolls of 110,000. Medtronic, the US medical device firm, became Ireland's largest company when it started trading on the New York Stock Exchange in late January following the acquisition of Covidien, another US company that had previously become Irish. On March 17, Actavis plc, the drugs firm and another US company that had become Irish, announced that it had completed the acquisition of Allergan, Inc. in a cash and equity transaction valued at approximately $70.5bn — the CSO may not acknowledge that these transactions distorted the national accounts — US-Ireland Tax Inversions 600,000+ staff
- Double Irish transactions massively distort services trade while pharmaceutical firms have boosted merchandise exports in recent times by booking overseas production in Ireland. The 2014 trade data is not reliable and in H1 2014 43% of the rise in GDP resulted from these fake transactions, according to the Irish Fiscal Advisory Council — see details here on both fake services and merchandise trade: Irish Export Performance: Myths and reality - Ireland is a poor exporter
Finfacts Sept 2014: The idiot/ eejit's guide to distorted Irish national economic data