Reforming Ireland’s Budgetary Cycle

Via Commenter @DOCM:

The final report of the Oireachtas sub-committe on reform is now available here.

It represents a major, even historical, change, including the introduction by 2017 of an IPBO, which we discussed here.

There remain, however, a number of major ambiguities e.g. no definition of the “budgetary cycle”, lack of clarity in the role of the Budget Oversight Committee (BOC) and its relations ship with the the sectoral committee “shadowing” Finance, PER and the Taoiseach’s department and, in particular, the other sectoral committees (page 9) “Committee also to consider option where Departmental Estimates would be considered by sectoral committees which would make their views known to Budget Oversight Committee for its consideration of aggregate position.”

In short, plenty on the form but very little in the matter of the substance of the involvement of the Dáil in deciding the levels and allocation of expenditure and taxation. It seems. however, that the split between PER and Finance will be between these two issues cf. the remarks by the Minister of Finance:

“The Spring Economic Statement will become a summer statement and it should be ready by June. There will be a full debate in the House. I am providing all the text papers to the finance committee so that there will be a full debate on taxation at that point, in advance of the budget.”

What should an Irish Parliamentary Budget Office Do?

Parliamentary Budget Offices (PBOs) exist around the world and typically provide budget projections, budget risk analyses, estimates of policy changes, impact assessments, flow of funds analyses, macro-trend analysis, and financial analysis where, prospective policies can be independently costed. The PBO also has an outreach function to show the public the work parliament does in assessing the fit of new proposals.

PBOs are different from Fiscal Councils, in that fiscal councils occupy a watchdog function, evaluating the health of the economy generally and assessing compliance with constitutionally-mandated fiscal rules. Ireland has a fiscal council, it does not have a PBO. The new programme for government commits (on pages 14 and 15) to establishing one.

Continue reading “What should an Irish Parliamentary Budget Office Do?”

Course outlines of the great economists

Irwin Collier has a fascinating blog with archival materials on the kinds of things the great economists taught via their course outlines. He has other stuff up there, but I know readers of this blog will enjoy this site. There’s some Irish work of interest here too: You’ll find references to Cairnes in Orcutt’s 1950 Empirical Economics courses, the work of UCD’s George O’Brien work on mediaeval economic thought appears on the Harvard reading list c.1950, and more.

Draft SPU Update: Risks

The Department of Finance has released a Spring-less Statement (.pdf), showing some interesting debt dynamics projections and a really nice risk-assessment section (see page 26) and their likely impacts on the Irish economy. Brexit figures highly, as one might imagine, but so do other external demand shocks and domestic issues, and the fiscal risks associated with not meeting our climate change targets. The Department writes:

There are fiscal risks associated with a legally binding EU Effort Sharing Decision on climate change covering the 2013-2020 period. Ireland is obliged to achieve a 20 per cent Greenhouse Gas emissions reduction (compared to 2005 levels) in certain sectors. Current EPA projections estimate that Ireland will not achieve this reduction and failure to comply may incur costs of hundreds of millions through the purchase of carbon credits until such time as the target is complied with. Similarly, further new costs may arise in the context of a new EU climate and energy framework for the period 2020-2030, which will set new emissions reduction targets.

Scary stuff.

Macrofinancial History and the New Business Cycle Facts

Jordà, Schularick and Taylor have produced a must-read paper, summarising the results of a decade-long research effort to create a long-run macro-financial data set for 17 countries. The paper is here (.pdf) and they provide some new stylized facts they document should “prove fertile ground for the development of a newer generation of macroeconomic models with a prominent role for financial factors”.Screen Shot 2016-04-17 at 21.57.06

In particular, they document a ‘hockey-stick’ effect of private sector creditto GDP for a range of economies, and one of the hockey sticks can be seen in the figure below. After about 1950, for most of the elements the authors study, finance and leverage takes a more and more central role in the development of modern economies.

PostDoc on the Economics of Flooding at UCC

UCC’s Dr Tom McDermott is looking to hire a post-doc to work on a project on the economics of flooding (with an Ireland focus). The project is funded by the EPA, and involves collaboration with Swenja Surminski in the Grantham Research Institute, LSE. The job advert is here and closes May 3rd.

(Link updated, thx Enda H.)

Maintenance & Upgrade Time

The site will be down this coming Sunday morning  Saturday afternoon for maintenance and upgrading. After backing up the database, etc., we’ll be moving the design of the site to the Twenty Sixteen default, which is much better for viewing on phones, tablets, and other devices. We’ll also be adding more features for posters on data and images as well as other upgrades.

There will be more changes coming in the next few weeks, so please bear with us.

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.

2 research assistantships at the Nevin economic research institute (NERI)

The Nevin Economic Research Institute is recruiting two Research Assistants for its offices in Dublin and Belfast. The posts will provide the successful applicant with an opportunity to contribute to a dynamic research programme covering a range of economic themes. The work will include analysis of data and preparation of working papers and reports as well as presentations at conferences and seminars.

The candidates must have completed or is expected to complete, in 2016, a post-graduate degree in a discipline relevant to the work of the NERI. Strong quantitative skills are essential.

Applications including full CV should be submitted by email to recruit@NERInstitute.net

Closing date for receipt of applications is 5pm FRIDAY 19TH FEBRUARY 2016.

Full details and job description are available at www.NERInstitute.net/recruitment

 

Redistribution in the Age of Austerity

Readers of this blog might be interested in this working paper we’ve just put up on the Levy working paper series. The abstract is below.

We examine the relationship between changes in a country’s public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006–13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU’s Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.

New research on households in long term arrears

Great work by Robert Kelly and Fergal McCann, pdf here, abstract below:

The resolution of the long-term mortgage arrears (those in arrears greater than one year; LTMA) crisis represents one of the key policy challenges in Ireland today. In this Letter we highlight the range of economic and demographic characteristics associated with the experience of LTMA in Ireland. Our analysis suggests that unemployment shocks, changes in mortgage affordability, the accumulation of non-mortgage debt, higher originating loan-to-value ratios and weak housing equity positions all have an important explanatory role. We also outline repayment patterns among households at differing levels of mortgage arrears. It is shown that in 2014, over three quarters of those in LTMA had continued increases in their arrears balances. This contrasts with those in the early stages of arrears, where less than half of all borrowers had arrears increases.

Thoughts on Flat Taxes

Written for the RENUA flat taxes event today.

When all the little economists are in short pants, we learn the principles of public finance. Governments have to tax households and firms in order to provide services the market won’t, like libraries, street lighting, and national defense, as well as redistributing income from the rich to the poor as an aid to social solidarity. Taxes are a necessary evil. All taxes induce distortions to people’s behaviour. Some distortions, like the plastic bag tax, are clearly good. They make almost no one worse off and make lots of people better off. Recurrent taxes on property are in fact the least distortive to long run GDP per capita we have. While a site value tax would have been perfect, the LPT does a similar if suboptimal job.

Some taxes are highly distortionary, such as a very low corporation tax rate, or a very high income tax rate. These make lots of people better (and worse) off and damage important incentives. An efficient tax structure would deliver the funds to power public services with the minimum of distortions to individual and collective incentives. The theory of public finance has come around to the view that marginal taxes are not the most important thing to worry about, in information-opaque systems, the average tax rate should be relied on most heavily. The all-in tax rate for personal income tax & employee social security contributions is 52% here, relative to 46% on average across the OECD.

Perhaps more importantly, the ability to balance the average tax rate with a corruption-resistant tax structure through which taxes are collected and disbursed is a major asset of any public finance structure.  Important results have now been established showing the spread of corruption is quite badly affected by the ease with which the variables which determine the tax base can be manipulated by those in power. If we worry about the Noonan-end of the tax gathering element first, then, two principles which therefore make sense are simplicity and certainty with respect to the tax system.

Continue reading “Thoughts on Flat Taxes”

Review of budget oversight by parliament: Ireland

Worth a read by readers of this blog (.pdf).

Key lessons:

Budget oversight by the Irish parliamentary chambers is under-developed by international standards.

Reforms mooted include:

  • Ex ante parliamentary input to medium-term fiscal planning;
  • Ex ante parliamentary input on budget priorities;
  • Early publication of full budgetary information and legislative proposals;
  • Timely consideration of the Estimates of Expenditure;
  • Performance Dialogue with joint committees in early year;
  • Re-introduce “Pre-Budget Estimates” showing “no policy change” expenditure baselines;
  • Establish an Irish Parliamentary Budget Office to support parliamentary engagement and budget scrutiny;
  • Continuing Professional Development of parliamentarians and officials;
  • “Performance hearings” with joint committees in early part of the year (February-March);
  • Power for joint committees to recommend changes to performance information;
  • Systematic review of existing performance metrics;
  • Estimates Performance Reports;
  • Promotion of IrelandStat as an authoritative portal for public performance;
  • Linkages to higher level strategies and articulation of a “National Performance Framework”;
  • Establishment of a “National Performance Quality Panel”;
  • Role for Irish Parliamentary Budget Office in supporting performance scrutiny;
  • Selective Audit of Performance Information by the Office of the Comptroller & Auditor General in reports to the Public Accounts Committee and other committees.

Well worth going through this, it is a wealth of constructive suggestions.

Bank Runs as end runs for policy?

The Greek Finance Minister appeals directly to Ireland in the IT here, while on Medium, Karl Whelan puts the blame for the calamitous situation on the official response of the Troika in 2010.

A serious question we do need to answer: are bank runs, or the potential for bank runs, becoming the ultimate backstop in a currency union comprised of creditor and debtor nations?

In the end the Oireachtas banking inquiry is unearthing the powerful narrative threat of the ‘ATMs running dry’ as driving much of the decision to deliver the 2008 guarantee, Cyprus had a bank run precipitate its crisis, at least partially. Iceland had the same experience, and we all know what is happening to Greek deposits right now, ELA or not.

 

A general practitioner’s perspective on the guest blog by Dr Kevin Denny

Dr William Behan, co-author of “Does Eliminating Fees at Point of Access Affect Irish General Practice Attendance Rates in the Under 6 Years Old Population? A Cross Sectional Study at Six General Practices”

You can download a .pdf of this blog post with references here. 

Most of the state sponsored; CSO or university department generated statistics on general practice utilisation since 2001 have been based on surveys employing 1 year recollection. Dr. Denny uses Growing Up in Ireland (GUI) the largest database available for the purpose of determining the marginal effect of granting private under 6s patients medical cards. Intuitively this makes sense……or does it when the potential biases of that particular survey data are explored?

We really have to examine biases in statistics collection to determine what is more likely.

Continue reading “A general practitioner’s perspective on the guest blog by Dr Kevin Denny”

On the possible effects of free GP care for under 6’s.

(This is a guest post by Dr Kevin Denny of the School of Economics & Geary Institute, UCD).

The extension of free GP care to under 6’s has raised the issue of what the effect will be on GPs’ practices. Understandably they are concerned about the increased demand on a sector that appears to be under strain. I am not aware of any specific research for this age group (mea culpa if I have missed it).

There are several studies for the general populations (various convex combinations of Anne Nolan, Brian Nolan & David Madden). I heard a very interesting recent interview on TodayFM with a GP Ciara Kelly. In the course of this, she said that children with medical cards visit a doctor 6 times a year while those without visited twice. From this she inferred that the new scheme would triple the demand of those currently without free care.A GP that I was once on a radio panel with said something very similar. I don’t know the origins of these numbers. However the average difference between the two groups is not relevant here: you need to know the marginal effect. Children currently without medical cards are different from those with: on average they are, inter alia, healthier and wealthier.

Estimates from other countries are not informative. I searched in vain for a government document that discussed this. We now have very good data in the form of the Growing Up in Ireland study. Here I report some estimates of what the effect of the reform might be. I use the second wave of the infant cohort – the three year olds who should be reasonably representative of the 0-5 age range. As dependent variable I use the question on “Number of times seen or talked with a general practitioner in the last 12 months”. This is top-coded at 20 but there are very few in that category. The variable of interest is whether they are covered by a medical card. I combine GP-only and the full medical card for simplicity.

I have a long list of controls which covers the usual suspects. They include health of the child and mother, income, education and other demographics. I also have a variable that indicated whether their GP visits are covered by private health insurance. Changes to the controls do not make much difference.

There are numerous ways of estimating such models and I used three. For the cognoscenti these are poisson & neg-bin2 regressions and a finite mixture of poissons. The marginal effects are very similar as is often the case. Before we consider those, what is the average difference in the data? In the GUI the population weighted mean of doctor visits for children covered and not-covered by medical cards is: 3.13 and 2.18 respectively. This is very different from the 6 and 2 mentioned above, the source of which I don’t know.

The marginal effects for the different models vary between 0.632 and 0.713, less than the average difference (as you would expect) and a lot less than the difference of 4 mentioned above. For simplicity I will take 0.68 as a ballpark value. So giving free GP care for under 6’s should increase the number of GP visits per child by less than one per annum. We are assuming homogenous effects: you could generalize this to allow the effects differ in various ways. The marginal effect of having private insurance is about 0.34. Since these are probably the better-off of non-medical card holders, this suggests that 0.68 is on the high side i.e. the effect on the kids of the rich of free GP care is probably lower, if anything.

I also estimated the model using the child cohort (the 9 year olds) for whom the marginal effect is about 0.33 incidentally. Estimates for adults tend to be in the 1-2 visits per annum range. So what might this mean in practice? The maximum number of children who could be covered by the present reform is about 270,000. Multiply by 0.68 & this suggests an extra ~183,600 GP visits a year. There are around 2,500 GPs in Ireland so this is about 73.5 visits a year each. If they work on average 47 weeks a year this would mean about 1.56 extra visits a week from the under-6’s for a GP. It would be interesting to know how much of a GP’s time this is likely to require.

The mean is not the only parameter in town. For doctors whose patients are already covered there will be little or no difference. Doctors in more affluent areas will likely bear the brunt. Doubtless there are additional complications.

For example, not all GP’s will sign up. I am ignoring general equilibrium effects, such as any ensuing change in the number of GPs. Perhaps the main known unknown is the labour supply responses of GPs to a switch from a per-visit fee to a capitation grant which encourages them to take on patients but spend as little time as possible with them. Extrapolation is difficult, especially about the unknown.

I don’t mean to suggest that my estimates are best, I can’t explore every possibility in a blog post. I think they are credible though. Readers may have better knowledge of some of these parameters.

A file with the full results is available at http://tinyurl.com/p9cu8ax