Last year, this country’s economy grew by 26 percent—the reason is low taxes AP Photo/Heribert Proepper
US Nobel Prize of Economy winner Paul Krugman delivers his speech after he was awarded with the Global Economy Prize 2010 of the Kiel Institute for World Economy in Kiel, northern Germany, on Sunday, June 20, 2010. (AP Photo/Heribert Proepper)

That “26 percent” number in the headline isn’t a typo, though economists at Ireland’s Central Statistics Office surely thought it was. But no: the Irish economy really did expand by more than a quarter last year. Bloomberg reports:

In three days, Jim Power is due in London to brief the British-Irish Trade Association on the state of the Irish economy. Now, he has no idea what he is going to say.

The economy grew 26 percent in 2015, officials from the Central Statistics Office told a stunned room full of economists and reporters in Dublin on Tuesday. Previously, they had estimated growth of 7.8 percent.

“I’m not going to stand up and say the economy grew by 26 percent,” Power, an independent economist, said after the release. “It’s meaningless — we would be laughing” if these numbers came out of China, he said.

Power isn’t the only economist who sounded a skeptical note. Keynesian bagman Paul Krugman dubbed the 26 percent figure “leprechaun economics” on Twitter earlier this week and questioned the CSO’s formula. At issue is Ireland’s famously low corporate tax rate of 12.5 percent, which has made it something of an offshore haven for corporate headquarters—like how many big companies receive their mail in low-tax Delaware here in the United States.

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This has made Ireland a popular destination for something called “inversion deals,” in which an Irish company purchases a larger multinational so the corporation can technically headquarter itself in Ireland and take advantage of the low tax rate. Problem is, that doesn’t result in a commensurate increase in employment or spending, even if the deal drives up the GDP. So, while Ireland might have grown by 26 percent, consumer spending went up by only 4.5 percent. It’s also a small economy, meaning big corporate deals produce ripples that wouldn’t be felt in larger countries.

So analogizing America to Ireland is somewhat like comparing apples and oranges (if you thought apples and shamrocks, you’re a bad person). But nevertheless, there’s a general principle at work here. Ireland has the lowest corporate tax rate in the industrialized world, and that percentage is further halved if your company hires high-skilled Irish workers—a sharp idea that’s encouraged domestic growth. Even if the 26 percent figure is an anomaly, Ireland’s economy is currently the best in the eurozone: the original 2015 GDP calculation, which didn’t account for inversion deals, still had it growing by almost 7 percent, on pace with China. Compare that to 1.1 percent growth in tax-soaked France.

Not bad for an island nation of 6 million people.

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The United States, at the recommendation of progressive economists like Krugman, has a corporate income tax of 39.1 percent, the highest in the industrialized world and the third-highest generally behind only the United Arab Emirates and that economic powerhouse Chad. There’s a lesson here. Be assured that our policymakers won’t learn it.

Matt Purple About the author:
Matt Purple is the Deputy Editor for Rare Politics. Follow him on Twitter @MattPurple
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