I have posted the issue on stack overflow as well: 
 
http://stackoverflow.com/questions/26540475/polymer-paper-dropdown-menu-expansion-height-limited-by-core-collapse

core-collapse does have a 'fixedSize' attribute (defaulting to false). 
 When false it should try to size itself using auto to determine the 
natural size for collapsing/expanding.  However, it seems to determine this 
size using the unexpanded enclosed dropdown menu heights.  

Has anyone run into this issue and figured out an elegant way around it?

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