Article Economic TrendsHannu Piekkola* Intangible Capital: the Key to Growth in EuropeIntangibles and especially organisational capital are an important source of capital deepening in European countries, albeit with signifi cant cross-country differences. The GDP in the EU27 area is 5.5% higher if certain categories of expenditure, which have until now been considered as current costs, are classifi ed as investments in intangibles. Intangible capital investment markedly improves the profi tability of companies, given the productivity-wage gap, and leads to increasing returns in intangible capital intensive countries.

No abstract

In this paper we reconcile and extend previous results on the collectively optimal taxation of international investment income. The ''weighted average'' rule of Horst (1980), for example, is shown to rest on unattractive assumptions on the set of instruments available, ruling out any need for distorting taxes. The principal contribution is to establish a new and strikingly simple weighted average rule -encompassing the other key result in this area -for the general case in which lump-sum taxes are unavailable, the ability to tax pure profits is perhaps restricted and distorting taxes on both domestic and border-crossing capital income are optimally deployed.

This study derives performance‐ and expenditure‐based estimates of intangible capital and measures the extent to which intangible capital is captured by the equity market measures of firm value. Intangible capital is evaluated using occupational information available in the Finnish linked employer–employee data for the 1997–2011 period. The performance‐based organizational investment in value added is approximately 3 percent; R&D and ICT investment shares are lower, at 1.5 percent, and all are clustered in intangible‐intensive sectors that represent 40 percent of the private sector. Expenditure‐based organizational capital also exists in clusters other than that intensively investing in managerial and marketing effort, and performance‐based R&D capital is concentrated in the cluster with intensive R&D activity; both increase the market value of firms beyond the level that can be explained by standard economic analysis.

Organizational work, ICT activity, and R&D work can be classified as work that creates intangible capital. We measure productivity of organizational type work (defined as management and marketing activity), along with productivity of all other intangible capital type work, by accounting for differences in productivity compared with other work. We find some upskilling of intangible capital type work in the 2000s including increasing relative productivity of organizational work. The productivity effects of organizational work are pervasive and related to globalization. Outsourcing is positively related to the productivity impact of organization work but not to that of R&D work.