IDEAS home Printed from https://ideas.repec.org/p/zbw/ipewps/1542021.html
   My bibliography  Save this paper

Profit-led in effect or in mere appearance? Estimating the Irish demand regime given the influence of multinational enterprises

Author

Listed:
  • Woodgate, Ryan

Abstract

In the Republic of Ireland, the activities of MNEs drive real demand on one level and severely distort conventional national accounts statistics on another. This poses a problem for the valid estimation of the Irish demand regime since key variables such as the wage share of GDP are skewed and strongly correlated with omitted variables that determine some components of demand. This paper summarises the real and distortionary effects of MNEs in Ireland, and then adjusts and controls for these effects as much as possible in an econometric estimation of the underlying Irish demand regime. Both ordinary least squares and three stage least squares estimators are used, the latter as an attempt to deal with the issue of simultaneity bias that confronts all empirical attempts at demand regime estimation. The main results of this paper are twofold. Firstly, Ireland is found to be wage-led in the specifications that adjust and control for the influence of MNEs. Second, the average effective corporate tax rate (AECTR) on foreign affiliates in Ireland is found to be statistically significant in explaining investment. This, alongside indicative foreign affiliate statistics, supports the view that Ireland may be "tax competition-led", in the sense implied by Woodgate (2020), where a lower AECTR has a net positive effect on aggregate demand in Ireland (though at the expense of other nations). The implications of these findings for policy are drawn.

Suggested Citation

  • Woodgate, Ryan, 2021. "Profit-led in effect or in mere appearance? Estimating the Irish demand regime given the influence of multinational enterprises," IPE Working Papers 154/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    • Handle: RePEc:zbw:ipewps:1542021
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/228869/1/1745639756.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert A. Blecker, 2016. "Wage-led versus profit-led demand regimes: the long and the short of it," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(4), pages 373-390, October.
    2. Obst, Thomas & Onaran, Özlem & Nikolaidi, Maria, 2017. "The effect of income distribution and fiscal policy on growth, investment, and budget balance: the case of Europe," Greenwich Papers in Political Economy 16088, University of Greenwich, Greenwich Political Economy Research Centre.
    3. William Robert Reed, 2015. "On the Practice of Lagging Variables to Avoid Simultaneity," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(6), pages 897-905, December.
    4. Schmidt, Peter, 1990. "Three-stage least squares with different instruments for different equations," Journal of Econometrics, Elsevier, vol. 43(3), pages 389-394, March.
    5. Robert A Blecker & Michael Cauvel & Y K Kim, 2022. "Systems estimation of a structural model of distribution and demand in the US economy," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(2), pages 391-420.
    6. Thomas Wright & Gabriel Zucman, 2018. "The Exorbitant Tax Privilege," NBER Working Papers 24983, National Bureau of Economic Research, Inc.
    7. Fariha Kamal, 2019. "A Portrait of US Factoryless Goods Producers," NBER Chapters, in: Challenges of Globalization in the Measurement of National Accounts, pages 425-447, National Bureau of Economic Research, Inc.
    8. Ozlem Onaran & Thomas Obst, 2016. "Wage-led growth in the EU15 member-states: the effects of income distribution on growth, investment, trade balance and inflation," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(6), pages 1517-1551.
    9. Henningsen, Arne & Hamann, Jeff D., 2007. "systemfit: A Package for Estimating Systems of Simultaneous Equations in R," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 23(i04).
    10. Thomas Tørsløv & Ludvig Wier & Gabriel Zucman, 2023. "The Missing Profits of Nations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(3), pages 1499-1534.
    11. Cem Oyvat & Oğuz Öztunalı & Ceyhun Elgin, 2020. "Wage‐led versus profit‐led demand: A comprehensive empirical analysis," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 458-486, July.
    12. Gabriel Zucman, 2014. "Taxing across Borders: Tracking Personal Wealth and Corporate Profits," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 121-148, Fall.
    13. Engelbert Stockhammer & Robert Stehrer, 2011. "Goodwin or Kalecki in Demand? Functional Income Distribution and Aggregate Demand in the Short Run," Review of Radical Political Economics, Union for Radical Political Economics, vol. 43(4), pages 506-522, December.
    14. William Milberg & Deborah Winkler, 2010. "Financialisation and the dynamics of offshoring in the USA," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(2), pages 275-293, March.
    15. Stephen Kinsella, 2013. "Was Ireland's Celtic Tiger Period Profit-led or Wage-led?," Review of Political Economy, Taylor & Francis Journals, vol. 25(4), pages 572-585, October.
    16. Thomas Obst & Özlem Onaran & Maria Nikolaidi, 2020. "The effects of income distribution and fiscal policy on aggregate demand, investment and the budget balance: the case of Europe1," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 44(6), pages 1221-1243.
    17. Thomas Obst & Özlem Onaran & Maria Nikolaidi, 0. "The effects of income distribution and fiscal policy on aggregate demand, investment and the budget balance: the case of Europe1," Cambridge Journal of Economics, Oxford University Press, vol. 44(6), pages 1221-1243.
    18. Aidan Regan & Samuel Brazys, 2018. "Celtic Phoenix or Leprechaun Economics? The Politics of an FDI-led Growth Model in Europe," New Political Economy, Taylor & Francis Journals, vol. 23(2), pages 223-238, March.
    19. Blecker, Robert A, 1989. "International Competition, Income Distribution and Economic Growth," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 13(3), pages 395-412, September.
    20. José Barrales & Rudiger von Arnim, 2017. "Longer-run distributive cycles: wavelet decompositions for the US, 1948–2011," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(2), pages 196-217, April.
    21. Eeckhout, Jan & De loecker, Jan, 2018. "Global Market Power," CEPR Discussion Papers 13009, C.E.P.R. Discussion Papers.
    22. Eckhard Hein, 2014. "Distribution and Growth after Keynes," Books, Edward Elgar Publishing, number 15903.
    23. Ryan Woodgate, 2020. "Can tax competition boost demand? Causes and consequences of the global race to the bottom in corporate tax rates," Review of Keynesian Economics, Edward Elgar Publishing, vol. 8(4), pages 512–535-5, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Woodgate, Ryan, 2021. "Multinational corporations and commercialised states: Can state aid serve as the basis for an FDI-driven growth strategy?," IPE Working Papers 161/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    2. Uros Delevic & James Kennell, 2022. "Multinationals And Wages: Evidence From Employer–Employee Data In Serbia," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(232), pages 49-80, January –.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ryan Woodgate, 2022. "Profit-led in effect or in appearance alone? Estimating the Irish demand regime given the influence of multinational enterprises," Review of Evolutionary Political Economy, Springer, vol. 3(2), pages 319-350, July.
    2. Robert A Blecker & Michael Cauvel & Y K Kim, 2022. "Systems estimation of a structural model of distribution and demand in the US economy," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(2), pages 391-420.
    3. Cícero, Vinicius Curti & Lima, Gilberto Tadeu, 2023. "Functional distribution of income as a determinant of importing behavior: An empirical analysis," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 393-405.
    4. Robert A. Blecker, 2016. "Wage-led versus profit-led demand regimes: the long and the short of it," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(4), pages 373-390, October.
    5. Eckhard Hein, 2017. "Post-Keynesian macroeconomics since the mid 1990s: main developments," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 14(2), pages 131-172, September.
    6. Marques, André M. & Lima, Gilberto Tadeu, 2022. "Testing for Granger causality in quantiles between the wage share in income and productive capacity utilization," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 290-312.
    7. Stefan Ederer & Miriam Rehm, 2021. "Wealth inequality and aggregate demand," Metroeconomica, Wiley Blackwell, vol. 72(2), pages 405-424, May.
    8. Cem Oyvat & Oğuz Öztunalı & Ceyhun Elgin, 2020. "Wage‐led versus profit‐led demand: A comprehensive empirical analysis," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 458-486, July.
    9. Prante, Franz & Hein, Eckhard & Bramucci, Alessandro, 2021. "Varieties and interdependencies of demand and growth regimes in finance-dominated capitalism," IPE Working Papers 173/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    10. Eckhard Hein, 2020. "Gender Issues in Kaleckian Distribution and Growth Models: On the Macroeconomics of the Gender Wage Gap," Review of Political Economy, Taylor & Francis Journals, vol. 32(4), pages 640-664, October.
    11. Hein, Eckhard, 2022. "Varieties of demand and growth regimes: Post-Keynesian foundations," IPE Working Papers 196/2022, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    12. Prante, Franz J., 2019. "Income distribution and the multiplier: An exploration of nonlinear distribution effects in linear Kaleckian distribution and growth models," IPE Working Papers 121/2019, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    13. Dávila-Fernández, Marwil J. & Sordi, Serena, 2019. "Distributive cycles and endogenous technical change in a BoPC growth model," Economic Modelling, Elsevier, vol. 77(C), pages 216-233.
    14. Jose Barrales‐Ruiz & Ivan Mendieta‐Muñoz & Codrina Rada & Daniele Tavani & Rudiger von Arnim, 2022. "The distributive cycle: Evidence and current debates," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 468-503, April.
    15. Betül Mutlugün, 2022. "Endogenous income distribution and aggregate demand: Empirical evidence from heterogeneous panel structural vector autoregression," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 583-637, May.
    16. Ozan Ekin Kurt, 2020. "Functional income distribution, capacity utilization, capital accumulation and productivity growth in Turkey: A post‐Kaleckian analysis," Metroeconomica, Wiley Blackwell, vol. 71(4), pages 734-766, November.
    17. Jiménez, Valeria, 2020. "Wage shares and demand regimes in Central America: An empirical analysis for Costa Rica, El Salvador, Honduras, Nicaragua, and Panama, 1970-2016," IPE Working Papers 151/2020, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    18. Engelbert Stockhammer & Karsten Kohler, 2023. "Learning from distant cousins? Post-Keynesian Economics, Comparative Political Economy, and the Growth Models approach," Chapters, in: Thomas Palley & Esteban Pérez Caldentey & Matías Vernengo (ed.), Varieties of Capitalism, chapter 3, pages 56-75, Edward Elgar Publishing.
    19. Campana, Juan Manuel & Emboava Vaz, João & Hein, Eckhard & Jungmann, Benjamin, 2022. "Demand and growth regimes of the BRICs countries," IPE Working Papers 197/2022, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    20. Mariolis Theodore & Konstantakis Konstantinos N. & Michaelides Panayotis G. & Tsionas Efthymios G., 2019. "A non-linear Keynesian Goodwin-type endogenous model of the cycle: Bayesian evidence for the USA," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 23(1), pages 1-16, February.

    More about this item

    Keywords

    Distribution; demand regime; Ireland; tax competition; profit shifting;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:ipewps:1542021. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/iphwrde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.