Revenue’s Annual Report 2016

Revenue today published our Annual Report for 2016. The report itself contains a lot of interesting material on our activities and outputs last year. In addition, we have published research reports on Corporation Tax returns for 2015 and payments in 2016, the oil market in Ireland, our latest illicit tobacco survey results and a summary of lessons from the application of behavioural economics in Revenue. We have also updated our regular statistics on Local Property Tax.

65th Economic Policy Panel

For more than 30 years, Economic Policy has been publishing papers on pressing European policy issues. Preliminary versions of the papers are first discussed at Panel meetings. The 65th Panel meeting, which starts today in Valletta, features papers on the causes of Brexit, on the consequences of Brexit, on the impact of the 2015 reforms on the Italian labour market, on innovation, on entrepreneurship, on retirement, on monetary policy, and on mobile communications. The papers are available here.

The income distribution and the Irish mortgage market

How concentrated are mortgage originations among those on higher incomes? Has this pattern changed through expansion and contraction in the Irish housing market? Combining for the first time information on the incomes at origination of a large sample of Irish mortgage holders with survey information on the population income distribution in each year, my colleague Reamonn Lydon and I address these issues over the period 1994 to 2014 in an Economic Letter released recently by the Central Bank.

In the work we highlight that the income profile of borrowers entering the First Time Buyer, Mover-Purchaser (also referred to as Second and Subsequent Buyer), and Buy to Let markets is markedly different.

The first chart below shows the evolution of the share of new First Time Buyer mortgage originations going to each population quintile between 1994 and 2014 (income distribution data were not available to us for 2015 at the time of carrying out the work). A number of patterns are evident:

  • The share of those in the top income quintile fell from over 40 per cent in 1994 to around 12 per cent by 2008.
  • The share of those in the middle income quintile rose from 15 per cent to over 40 per cent over the same period.
  • There has been a slight reversal of this pattern since the financial crisis; however, the share of originations going to the middle quintile is still well ahead of the top quintile.
  • Those in the bottom 40 per cent of population incomes have generally accounted for less than ten per cent of mortgage originations in a given year.

ftb

Next we examine the Mover-Purchaser or SSB market, and find that:

  • There was a similar convergence in the market shares of the 5th and 3rd quintiles over the Celtic Tiger period.
  • The reallocation towards the top income quintile in this market has been much sharper since 2008, with the market share standing at above 60 per cent for 2014.

ssb

The findings suggest that the crisis has been associated with some significant structural shifts in mortgage market participation. In the case of the SSB market, it is possible that the role of negative equity in impeding mover-purchases has been much more prevalent in recent years outside of the top quintile of the population income distribution. In the case of First Time Buyers, where the changes have been relatively less pronounced, the shifting age profile, where borrowers are entering the market later in life, may also explain the shift towards higher-income purchasers. Our research does not attempt to definitively quantify the role of supply side (such as bank lending policies) and demand side factors in explaining these changing patterns.

Other related research was also released in the Bank’s recent Quarterly Bulletin: The balancing act: household indebtedness over the lifecycle, by Apostolos Fasianos, Reamonn Lydon and Tara McIndoe-Calder. Finally, another related piece came out as a Research Technical Paper on the Great Irish (De)Leveraging by Reamonn Lydon and Tara McIndoe-Calder.

SSISI Annual Symposium – 5pm April 20th (Central Bank, North Wall Quay)

A message on behalf of Frances Ruane (President of the Statistical & Social Inquiry Society of Ireland):

The Statistical & Social Inquiry Society of Ireland’s Annual Symposium will be held on Thursday April 20th at 5pm, in the Central Bank of Ireland, North Wall Quay (Dublin 1).

The theme will be “Globalisation, Inequality and the Rise of Populism: Economic, Social and Political Perspectives” and the speakers include:

  • Prof Brian Nolan (Oxford)
  • Prof Richard Layte (ESRI)
  • Dr Theresa Reidy (UCC)

Non-members are welcome to attend and participate in the discussion. Please email secretary@ssisi.ie to register for this event. More information about the event and about SSISI is available here.

GDP Carry-over Carry-on

If the economy expands through a new year by, say, 1% each quarter from the previous Q4 number, the growth rate on an annual basis will be about 4%, right?
Wrong. It depends on the intra-year pattern the year before. If the previous year saw quarterly improvements, with the Q4 figure ahead of the year’s average, a flat performance in the new year will yield apparent year-on-year growth, even though the economy is not expanding.
The seasonally adjusted GDP numbers for 2016 were released on March 9th, also and not coincidentally the data cut-off for the ESRI forecast of year-on-year growth in 2017 of 3.8%. Subsequent forecasts from the Central Bank and the Department of Finance came in at 3.5% and 4.3% respectively.
The sum of seasonally adjusted GDP for the four quarters of 2016, according to the CSO, came to €256.3 billion. But the Q4 number was 26% of the annual total at €66.6 bn. A flat performance from Q4 through each quarter of 2017 would yield an annual growth rate of 4%. So the ESRI projection is consistent with no improvement, indeed a slight decline, from Q4 last year. The CB projection implies a bigger decline, the DoF a tiny increase. All three sets of projections were heralded in the press coverage as signalling continued economic expansion through 2017.
The problem is the so-called ‘carry-over’ effect – Joe Durkan has been on about this for aeons. The CSO has been publishing quarterly macro data for over twenty years. Perhaps it is time for forecasts to be done on the same basis.
For the record, if you expect GDP to grow 1% per quarter from the Q4 2016 base through 2017, the year-on-year growth rate will be 6.6%. If the forecasters feel the Q4 figure was odd, and that there will be a dip for Q1 2017, better to say so.

Dublin Economics Workshop annual conference: Save the date!

On behalf of the newly-minted organising committee, I’d like to notify readers of this site about the DEW’s 40th Annual Conference. Still affectionately known as the ‘Kenmare Conference’, it will take place in White’s of Wexford (the same venue as last year) on Friday September 22nd and Saturday 23rd.

A limited number of very favourably priced “all-in” tickets (conference plus two nights accommodation and dinners) will be available. More details will be posted here, on dublineconomics.com and sent to the DEW’s mailing list as they are available. One thing to note is that – similar to most years of its existence, albeit not the last few – for most of the conference, there will be just one set of sessions at any given point in time.

The Dublin Economics Workshop is generously supported by the Dublin Chamber of Commerce. (Those of a historical bent might be interested in this chronicle of the chamber’s history.)

Why people prefer unequal societies

Some readers might be interested in this post/article just published in Nature – Human Behaviour. The title is “Why People Prefer Unequal Societies” (a slightly misleading title), and the main findings are:

Drawing upon laboratory studies, cross-cultural research, and experiments with babies and young children, we argue that humans naturally favour fair distributions, not equal ones, and that when fairness and equality clash, people prefer fair inequality over unfair equality.

 

Figure 1: Income inequality in Europe and the United States, 1900–2010.

Income shares

 
Figure 2: The actual US wealth distribution plotted against the estimated and ideal distributions across all respondents:

Ideal and actual distirbution

 

Figure 3: Percentage of children earning more than their parents, by birth year.

Parental earnings