Sarah Atkinson

This paper explores potential ways to develop experimental estimates of the value of U.S. imports of illegal drugs. It builds on the initial exploration of this topic by the Bureau of Economic Analysis (BEA) in Soloveichik (2019), which presents experimental estimates of U.S. domestic consumption of illegal drugs and of import of illegal drugs into the United States. In this paper, I extend Soloveichik’s research by exploring the feasibility of developing estimates of imports of methamphetamines and marijuana using seizure data, and I evaluate the extent to which source data allow us to estimate heroin and cocaine imports by geography. International guidelines for national economic accounts (the System of National Accounts 2008, or SNA) and international economic accounts (the Balance of Payments and International Investment Position Manual, sixth edition) explicitly recommend that some illegal market activity should be included in measured output. Soloveichik suggests that illegal drugs comprise the largest share of imports of this activity for the United States and would have added $111 billion to U.S. GDP in 2017.

Strategic behavior by U.S. multinational enterprises (MNEs) to shift profits between countries to reduce their worldwide tax burden has been well studied. Much of the existing research has focused on the use of debt payments and intrafirm intellectual property licensing agreements to explain why and how MNEs shift income across national borders. Although these tax strategies may become less important following the U.S. Tax Reform Act of 2017, there is evidence they have had a large impact on measures of economic activity in recent years. This paper explores how U.S. MNEs have used cost sharing agreements between U.S. parent companies and their foreign affiliates to shift ownership of intangible assets to lower tax jurisdictions at less-than-arm’s-length prices. These transactions reduce measured U.S. GDP and raise measured GDP in the host countries of foreign affiliates. Our empirical results are consistent with this behavior. They provide a microeconomic view of how strategic movement of intellectual property affects key measures in the national and international economic accounts, such as GDP and the trade balance.