Dylan G. Rassier

Formulary Measures for the U.S. Current Account: Accounting for Transactions Attributable to Special Purpose Entities of Multinational Enterprises *

Consistent with the residence concept of BPM6 and the SNA2008, the U.S. current account reflects international transactions within multinational enterprises (MNEs), including international transactions conducted with special purpose entities (SPEs). To better understand the role of SPEs in economic accounting statistics, international guidelines on foreign direct investment (FDI) positions and transactions recommend that compilers distinguish resident SPEs for inbound FDI and encourage compilers to offer supplemental measures on non-resident SPEs for outbound FDI. While U.S. economic accounting statistics are not significantly affected by resident SPEs, recent empirical evidence calls into question the extent to which U.S. statistics may be affected by non-resident SPEs (Lipsey 2009, 2010). In this paper, I explore formulary apportionment as an accounting treatment for transactions related to outbound FDI in the U.S. current account in order to better understand the effects of non-resident SPEs on U.S. economic accounting statistics. The empirical results reveal that formulary apportionment significantly reduces total U.S. exports of services and total U.S. imports of services but the combined effect on U.S. net exports is negligible with no noticeable effect on U.S. gross domestic product (GDP). Likewise, formulary apportionment significantly reduces total U.S. income receipts, which reduces U.S. gross national product by 1.1 percent. The results imply that transactions attributable to non-resident SPEs do not affect U.S. net exports or U.S. GDP. Likewise, nonresident SPEs appear to play a larger role in income-based measures of production than in expenditure-based measures of production.

Do Trade Unions Affect Compliance with Environmental Regulation

The author uses plant-level panel data from the Environmental Protection Agencys Permit Compliance System database to evaluate whether trade unions affect compliance with the Clean Water Act in the chemical manufacturing industries. Compliance is measured by pollution discharges relative to permitted limits and by the number of compliance violations. Results indicate that unionized plants and plants with relatively strong unions discharge more pollution relative to permitted limits than non-unionized plants and plants with relatively weak unions. However, results provide only weak evidence that plants with relatively strong unions incur more compliance violations than plants with relatively weak unions. These results contradict prior theoretical and empirical research that indicates unions have incentives to support stricter environmental regulation. In addition, there is evidence from compliance inspections that contradicts the argument that union members take an interest in environmental quality.

Improving the SNA Treatment of Multinational Enterprises

Core measures in the System of National Accounts (SNA) may reflect distortions based on the treatment of multinational enterprises (MNEs) under the residence concept, which is effectively a legal concept rather than an economic concept for special purpose entities that lack production. This paper suggests an improvement to the SNA treatment of MNEs by proposing an SNA framework that offers a dual presentation of measures on operating entities and measures on special purpose entities. A dual presentation adds information to better understand the role of MNEs and special purpose entities in national accounts. Nevertheless, the proposal also yields a meaningful departure from current SNA recommendations and current practice by statistical compilers, which requires careful consideration of practical matters before implementation is feasible.