Goerg, Hanley and Strobl write about FDI policy at Vox EU. Here’s the summary:
A chief concern for countries aiming to attract investment is how it will trickle down to the local economy. This column presents evidence on the effect of government grants to foreign companies investing in Ireland between 1983 and 2002. It finds that the grants had little effect on generating supply links with local firms and argues that governments should instead work towards reducing partner search costs.
Brian Lucey writes on the bondholder bailout and other matters in today’s Irish Times: article here.
Pat Kenny’s Frontline made for depressing watching last night. The first segment focused on the level and composition of the fiscal adjustment for the next four years with an emphasis on next year. Credit to Dan O’Brien and the others on the panel for being brave enough to be specific about where they would cut.
But given the size of the needed adjustment, I worry that this formula of focusing on specific adjustments one-by-one is just not going to work. For each proposed adjustment – means testing child benefit, cutting public–service pensions, introducing a property tax – the affected group will focus on the negative effect on them and will inevitably try to shift the burden.
Recognising the size of the overall adjustment, I think it is better to start with a plan for the overall distribution of the burden across the income/wealth distribution. The pain will need to be spread broadly but progressively. After recent budgets, the ESRI has provided an excellent analysis of the distributional implications of tax and benefit adjustments using its SWITCH model. This tool could be available prior to the budget to evaluate alternative four-year plans. The key is to make people think about the overall effect on them in the context of how the overall burden is being shared. My sense is that there is recognition a large adjustment must take place and most are willing to play their part — but only if assured that others are bearing their fair share. The alternative of arguing about specific cuts in isolation of the overall distribution of the pain is probably doomed to failure.
The BBC report on the UK Chancellor’s decision to axe child benefits from top-rate taxpayers. Rates in Ireland are approximately 150 per child per month (but vary with family size) and are paid universally regardless of family income for each child aged under 16 or under 18 and in full-time education. Like any universal payment of this nature, there is the obvious question as to why people on higher incomes should be receiving a transfer payment from the state. A less obvious question is what we mean by higher incomes and where the threshold should be set. Expenditure on this scheme is approximately 2.3 billion euro in Ireland. Those arguing to keep the benefit as it stands might question why we will end up subsidising John Terry’s wages (see Karl’s post below) while cutting benefits from mothers and children. I am not sure I have an answer to that one either. If we do have to cut, then I would rather it be from people like me with above average salaries and for schemes like child benefit that don’t have an obvious reason to be universal rather than from well-targeted schemes.
The latest quarterly bulletin from the Central Bank is available here.