There are two interesting economics seminars at TCD in the coming days:
1. Daniel Leigh (IMF) will present the recent WEO study “”Will It Hurt? Macroeconomic Effects of Fiscal Consolidation” 9am-10.30am on this Thursday
2. Gylfi Zoega (University of Iceland) will present a paper next Tuesday 12.30-2 on the Icelandic situation: “Lessons from a collapse of a financial system”
Both seminars are in IIIS seminar room on Level 6 of TCD Arts Block. All welcome.
8 replies on “Two Seminars at TCD”
@PL
Read [1] earlier – yes, it hurts the serfs.
[2] should be interesting for comparative purposes – pity we don’t have our own version of Ms Joly who is allowed to ‘name names’.
Philip,
thanks for highlighting an interesting piece (marred only by the repetition of unconsidered EFC nostrums for Ireand in the 80s).
I was particularly struck by this verdict;
‘For an open economy, when interest rates are already near-zero, and there is a global fiscal contraction occurring, a 1% GDP fiscal contraction leads to 2% loss of output’ (p19).
But this is only for first-year effects, judging by Chart 3.12. The cumulative 5yr effect seems to be a loss of output of approx. 6%.
Whatever the estimate of the sensitivity of government finances (both expenditures and outlays) to changes in output (the DoF estimate is 0.6) a 6% decline in output will overwhelm any ‘savings’ made from a 1% fiscal contraction.
Plainly, cuts widen the deficit.
I wonder what the loss of output would be if we woke up one morning and the government’s ability to borrow was gone and it was unable to pay salaries, pensions, etc., for the following week.
If we don’t reign in borrowing then that’s the likely outcome.
Meantime, the report listed as #1 above also says “Consolidation is more painful when it relies primarily on tax hikes”.
We’ve had tax hikes, but spending has increased significantly from 2007 to 2009. It’s not forecast to fall much in the next budget either, so Ireland is still essentially running a huge spending spree, with spending equal to ~57% of GNP.
I wonder if the effects of tax rises etc that reduce personal or family income can be projected into an an increase in mortgage defaults and consequently further impeding on the banks?
Maybe an interesting question poorly asked…
Hugh
no need to wonder.
NTMA has already been obliged to withdraw, following €14.6bn mainly in spending cuts but also tax increases.
Curbing the level of borrowing is crucial. The mistake already made is to equate spending cuts with lower borrowing.
@Michael
Ok, so we’re half way to disaster, are we? The state can’t borrow but it can still pay salaries for a while because the NTMA has pre-borrowed the rest of the year and some of next. A few months. If the NTMA can’t borrow in the spring then there’s gonna be fun, is there?.
Meantime, on the basis of the Aidan Kane summaries of the NIE docs (see recent thread) the state spent something like 57% of GNP in 2009. Tens of percent of Ireland’s economic activity is borrowed and spent by govt and the ability to borrow is reaching its limits. The gap cannot plausibly be filled by even more tax raises. The papers today suggest that each 100c of borrowing and spending cut would reduce activity by only 50c. Of course, the taxpayer still needs to repay 100c if we repay this year, 106 or 107 next year, 115 or so the year after, etc…
So, where does the money come from in your world? You’d like to spend it, apparently you agree that we can’t really continue to borrow it, and taxes can’t fill the gap, so where will it come from? Are we back to the Magic Money Sock Party?
Hugh
paper 1, above does not ‘suggest that each 100c of borrowing and spending cut would reduce activity by only 50c’. You have elided spending and borrowing- they are not the same thing; spending has been cut here and borrowing has risen.
The reason for this is set out in the previous quote, which you have not addressed, that the €1 reduction in spending under current circumstances reduces output by €2 in the first year alone, by approx. €6 ove 5 years.
@Michael
If you actually believe that a drop in govt spending is responsible for the increase in borrowing in 2008 and 2009 then I can’t help you further.