Leprechaun economics

Paul Krugman-press conference Dec 07th, 2008-2

Ireland Trade Good Discrepancy (1995-2017)

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Michael Noonan (crop)

2020 EU ratio of GNI to GDP

Ireland Trade Good Discrepancy (1995-2017)

Leprechaun economics refers to the phenomenon where the gross domestic product (GDP) of a country, particularly Ireland, experiences an exaggerated increase due to the accounting practices of multinational corporations, rather than through actual economic growth in the traditional sense. This term was coined in 2016 following the revision of Ireland's GDP figures, which showed an astonishing 26.3% growth in 2015, a figure later adjusted to 34.4%. This growth was largely attributed to the corporate restructuring of a few large companies, rather than an increase in domestic economic activity. The term "Leprechaun economics" is a nod to the Irish folklore creature, the leprechaun, and is used to suggest that the GDP figures are as elusive and misleading as the mythical pot of gold.

Background

The phenomenon of Leprechaun economics is closely tied to the practices of tax inversion and the use of Ireland as a tax haven by multinational corporations. Ireland's corporate tax rate, one of the lowest in the European Union (EU), has made it an attractive location for companies looking to reduce their tax liabilities. When these companies restructure, they can significantly inflate the GDP of a small economy like Ireland's without a corresponding increase in economic activity or employment.

Implications

The implications of Leprechaun economics are multifaceted. On one hand, the inflated GDP figures can improve a country's economic indicators on paper, such as its debt-to-GDP ratio, potentially leading to lower borrowing costs. On the other hand, these figures can distort the true health of the economy and mislead policymakers and investors. Moreover, the reliance on multinational corporations for economic indicators can expose the country to significant economic volatility if these companies decide to relocate.

Criticism and Response

Leprechaun economics has been subject to criticism both within Ireland and internationally. Critics argue that it highlights the inadequacy of GDP as a measure of economic health and well-being. In response to the controversy, the Central Statistics Office (CSO) of Ireland introduced a new measure in 2017, called Modified Gross National Income (GNI*), which aims to provide a more accurate representation of the Irish economy by excluding the effects of multinational corporations' re-domiciling, aircraft leasing operations, and intellectual property product transfers.

See Also

• Tax inversion
• Corporate tax haven
• Economic growth
• Gross domestic product
• Gross national income