The Cyclical Conduct of Irish Fiscal Policy

In this new IIIS DP, we look at the conduct of Irish fiscal policy before and during the crisis.

3 replies on “The Cyclical Conduct of Irish Fiscal Policy”

Always good to have some econometric analysis and evidence to back up a description of how policy has evolved. If I am not mistaken, the analysis concerns 1999-2007 period (a short period), and it would be interesting to see how the model performs thererafter, or before (but I guess you’d say the model needs to be respecified), along with other evidence/support for the many other reasonable points made.

@ Philip Lane

“It would have been better to have run larger surpluses during the good years and even accumulated a liquid rainy-day fund that might have been deployed as a bu¤er against the impact of the severe negative economic shock (Lane 1997, Lane 1998b, Lane 1999, Lane 2000, Lane 2007, Lane 2010).”

You’re not saying ‘I told you so’, are you there Philip?

Very good paper on first survey, and will go back to it.

As a Fiscal Council and a Fiscal Responsibility law, as you note, is currently being set up, I’d have thought this is exactly the kind of paper contributors could usefully be reading and commenting on.


“The over-riding principle in designing …fiscal rules for Ireland should be to preserve medium-term …fiscal sustainability. To this end, it is appropriate to target an annual surplus in the structural fi…scal balance for several reasons.”

As you point out earlier in the paper, part of the problem 2002 – 2007ish was that a housing bubble and construction boom fed into tax income for the government, providing a regular modest annual surplus, was hard to track but ultimately showed itself to be unsustainable.

Perhaps, therefore, it matters as much that revenues are considered as to where they’re coming from and the sustainability thereof, as much as the fact that the government is running a surplus at all. The FAC could also consider the tax mix, as well as the headline figures.

Also, briefly, there should be clarity as to what ‘optimal’ taxation is. Optimal with regard to the amount it brings in, the affect on economic activity, affect on equality, fairness of distribution, etc.

Speaking of that sort of thing, here are some slightly old figures for tax as a percentage of GDP, ultimately from the OECD.

Denmark, Sweden, Italy, Belgium, Finland are the top five with Korea, Turkey, USA, Chile Mexico the bottom 5.

Assuming no disaster from peak oil, returning to the gold standard, international banking collapses, etc., if the economy returns to some sort of normality, the ultimate positioning of Ireland on this scale will help to define what kind of country we live in.

The overall tax take as proportion of G*P could also be considered as part of recovery, ie not just as emergency increases to pay off debt, and to be dropped later. Not sure whether that should be part of any law or FAC remit.

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