The latest edition of the Economic and Social Review is now available online here. The papers in the edition are as follows.
”Modelling Credit in the Irish Mortgage Market”
Diarmaid Addison-Smyth, Kieran McQuinn and Gerard O’Reilly
”Politics and Fiscal Policy Under Lemass: A Theoretical Appraisal”
”The Impact of Fiscal Shocks on the Irish Economy”
Agustin Benetrix and Philip R. Lane
”Language and Occupational Status: Linguistic Elitism in the Irish Labour Market”
Vani K. Borooah, Donal A. Dineen and Nicola Lynch
”A Code of Practice for Grocery Goods Undertakings and an Ombudsman: How to Do a Lot of Harm by Trying to Do a Little Good”
Paul K. Gorecki
‘”Income Inequality and Public Policy”
2 replies on “Economic and Social Review: Winter 2009”
Philip Lane and Agustin Benetrix are to be congratulated on providing an analysis of the impact of fiscal shocks on the Irish economy. The analysis is very welcome and can only serve to raise the level of the debate.
The DoF might care to examine the findings in some detail before formulating policy, or provide an alternative baseline assessment of its own. Of course, they might argue that the fiscal multipliers identified might not pertain currently, given that the time-series analysis stretches from 1970 to 2006. There might be some jusitification in that, not least because of the structural changes the economy has undergone.
But recent experience has shown, if anything, that the fiscal multipliers work very powerfully; a 13% decline in output has led to a 32% decline in taxation revenues. And, as the authors point out the the multipliers are likely to be higher when labour markets are slack. Others have found that they are also higher when interest rates are low, and separately, when access to credit is constrained. All 3 conditions currently apply.
A closer examination of the paper might also, at the very least, introduce some caution in proposing further cuts in capital spending, given the very high multipliers attached to government investment. I would rather argue that they almost make the case for increased government investment by themselves.
One striking feature of the findings is that the positive impulse of increased government absorption (govt. consumption + govt. investment) begins to fade only between 3 and 4 years after the event (not including the 2 year lag of the model).
That will also hold true of a negative impulse. Therefore the negative effects of Ireland’s unique contractionary experiment will not fade for several years to come.
Your case holds water if, and only if, one assumes – as you seem to do – that there are no constraints on, or any cost penalties associated with, a major expansion of government borrowing. My understanding of the consensus that has emerged among most Irish economists – and not one that, as is often alleged, is based on ideological grounds – is that these constraints and costs are real.
The Government is committed to ensure (presumably after some restructuring) the solvency of the covered banks. The extent of the State’s investment is unknown – but is likely to be sizeable. We are experiencing a “unique contractionary experiment” because of the hole this Government, and previous ones, have dug – and they are continuing to dig.
Releasing the equity tied up in the semi-states would reduce the Government’s reliance on external financing and the call on future resources. It would also leverage the financing of investment in new assets required to build the platform for future economic growth and prosperity.
I fully agree that investment is required, but something has to give to finance it.