Latest edition of Economic and Social Review now out

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Contents:

Vol 47, No 1, Spring (2016)

Table of Contents

Articles

ÉIRE Mod: A DSGE Model for Ireland
Daragh Clancy, Rossana Merola   1-31

Revisions to Macroeconomic Data: Ireland and the OECD
Eddie Casey, Diarmaid Smyth   33-68

Wagner in Ireland: An Econometric Analysis
Stephen Moore   69-103

Spillover in Euro Area Sovereign Bond Markets – Corrigendum
Thomas Conefrey, David Cronin   105-107

Policy Section Articles

Taxes, Income and Economic Mobility in Ireland: New Evidence from Tax
Records Data
Seán Kennedy, Yosuke Jin, David Haugh, Patrick Lenain   109-153

Searching for the Inclusive Growth Tax Grail: The Distributional
Impact of Growth Enhancing Tax Reform in Ireland
Brendan O’Connor, Terence Hynes, David Haugh, Patrick Lenain   155-184

Behavioural Science and Policy Network Meet-Up

Details of our 4th Irish Behavioural Science and Policy network meet-up are below. Sign up for the mailing list here. Sign up for the event itself here. Registration is free.

The fourth Irish Behavioural Science and Policy Network meet-up will take place on April 25th at 6pm in Dublin city centre (venue tbc). It will end at 8pm.  Each meet-up is structured around a collection of short talks, where each speaker describes briefly an idea they are working on (or thinking about), followed by questions, potential suggestions for collaboration between members, and a group discussion on the collection of talks.

This session will focus on applications of behavioural science to public policy. including health applications and the role of design principles. Speakers will include Dan Hayden from UCDClare Delargy from the BITEoin O’Malley from DCU and David Hevey from TCD.

All those interested are welcome to attend, so please do share this event information with anyone who you think would like to come along.

We look forward to seeing you on the 25th of April.

World university rankings

This is one way to try to boost your position in the world university rankings.

Another would be to shift admittedly very scarce resources from administrative to frontline staff, so as to keep class sizes under control; remember that the university’s core function was always to provide an excellent undergraduate education, and value those members of staff whose dedication made that possible; and value the outputs of research, instead of the financial inputs into it.

The ECB’s Inflation Target

The Eurozone HICP inflation index for February was at roughly the same level it had reached in the early months of 2012. That is to say the inflation rate has been essentially zero for four years.
The cumulative impact of this undershoot on the real burden of debt is getting to be very serious. The ECB’s own forecasts are for just 0.1% in 2016, 1.3% in 2017 and 1.6% in 2018, so they expect the undershooting to continue. By this time next year the price level will have been flat for five years. If GDP deflators had risen at 2% per annum for those five years various indebted countries would have knocked ten points off debt/GDP ratios, other things equal. So the ECB policy failure has consequences and has penalised the countries most heavily indebted.
Unlike the situation in the UK, the USA and other inflation-targeting countries there is not even a clear figure. The phrase (intoned at every Draghi press conference) is ‘below, but close to, 2%’. Why so coy? What does ‘close to’ actually mean? Will the 1.6% predicted for 2018 be deemed to have done the job?
The treaty talks only about price stability so the choice of target is entirely a matter for the ECB Governing Council. The tortured phraseology looks like a compromise – the sound money people getting the ‘below’ part and the rest getting the ‘but close to’. The 2% number had to get a mention, since various central banks had settled on an explicit 2% figure. It would hardly have been feasible to publicly declare a lower target number like 1% and would have had market repercussions. Whichever scribe came up with the form of words has hopefully been promoted.
Suppose the measures announced last week have their desired impact and Eurozone inflation reaches somewhere deemed ‘close to’ 2% in 2018. By that stage the heavily-indebted countries will have been short-changed substantially on real debt burdens. The remedy would be to raise the target, say to 4%, for five or six years in order to compensate, as Olivier Blanchard proposed when he was at the IMF. The indebted countries would be remiss not to push for this when the time comes, assuming the show is still on the road.

Scrapping Irish Water?

Reports abound that Irish Water is to die. Fianna Fáil has made Irish Water’s scrapping a pre-condition of any coalition, and sources around Fine Gael are fairly happy to see this toxic object redeveloped, at least in some way. The strategic interaction of the party blocs, the media, and the electorate has cast paying water charges into a mire of uncertainty, forcing the Taoiseach to plead with people to continue to pay their water bills.

All of a sudden, even that slight majority of people who were paying water charges have good reason to doubt whether paying for water services is worth it anymore. Surely if Irish Water is redesigned in some way, water charges of some type will have to keep being made to households and businesses?

There is no point debating how Irish Water should have been set up, or could have been set up. The fact is that it exists today, doing its work at some level of efficiency, what level that might be is anyone’s guess.

What is worth debating is what the likely effects of turning a long run infrastructural investment vehicle, however poorly designed and implemented, into a short term political football, might be.

Foundation for Fiscal Studies – Research Prize 2016

The Foundation for Fiscal Studies awards an annual prize to recognise outstanding contributors in the area of Irish fiscal policy. A prize of €1,000 will be awarded, together with a commemorative Gold Medal.

Nominations are invited for work completed during the period 2014 and 2015 which has added to the public knowledge or understanding in areas such as taxation, public expenditure and other related fiscal policy topics. These contributions may include research papers, reports, books, book chapters, blog posts, opinion pieces or any other method which has publically provided new and relevant insights into these topics in Ireland.

Further details in relation to eligibility are contained in the attached call for nomination.

Last year’s prize was awarded in September 2015 to Rónán Hickey and Diarmaid Smyth for their paper – ‘The Financial Crisis in Ireland and Government Revenues‘ – which is available to read on the FFS website by following the link.

The authors presented their paper and received their prize from Minister Harris at an FFS event in the Mansion House – details here.

Interested parties should note that the closing date for nominations is 30th April 2016 and that nominations of worthy work are encouraged from any party including the authors themselves. Nominations for the Prize should be made by email to info@fiscal.ie.

 

Vestager replies to Lew

The European Commission have responded to the recent interventions by the US Treasury into the tax related state-aid investigations with this letter from Margrethe Vestager to Jack Lew.

On one of the issues raised by the US Treasury the response is as would be expected:

I also hope we agree that the taxation systems of EU Member States entitle them to tax the profits generated by companies operating in their territory, including US companies.  The Commission has the duty to ensure that these rules are applied in a non-discriminatory manner by excluding preferential treatment in any form that constitutes incompatible State aid.  This does not put into question the US taxation system or go against double taxation treaties concluded by EU Member States.

So we await whether DG Comp are going to conclude that the estimated $120 billion of profits earned by Apple Sales International between 2004 and 2013 were generated in Ireland and so should be taxable in Ireland as opposed to only those profits earned by ASI’s branch in Ireland.  The Commission could also conclude that the allocation of profit to ASI’s Irish branch was “wrong” but if that was to be the case then this ongoing exchange of letters would have been wholly disproportionate.

The Commission are also investigating Apple Operations Europe (AOE).  AOE also has an Irish branch which undertakes manufacturing of a specialised range of computers.  However, ASI is the global hoover of Apple’s profits – it contracts with third-party manufacturers in China (with all agreements signed in the US) and sells on the products to Apple distributors at an “arm’s length price”.  The difference between the fee paid to the manufacturer and the price charged to the distributor is considerable.  Hence, the estimated $120 billion of profits earned by ASI between 2004 and 2013, with 90 per cent of that occurring in the final four years of the period.

ASI is a subsidiary of AOE so it is possible that the Commission could rule that the profits are taxable in Ireland when they are distributed as a dividend by ASI to AOE.  This could potentially bring our 25 per cent Corporation Tax rate into the equation.  But that seems very unlikely.  The focus will probably be on the trading profits earned by ASI, though if it ends up being a dispute over the profit allocated to ASI’s Irish branch we really will be left wondering what all the excitement was about.

How long more will they keep us waiting?  And if a decision is published by DG Comp is there a timeframe within which an appeal to the CJEU must be made?