You can find the papers (where available) and slides from today’s TCD-DEW Economic Policy conference here.
Category: Fiscal Policy
Edgar Morgenroth assesses the role of public investment during a recession in this paper.
Even by his own standards, Marc Coleman outdid himself in his latest column in the Sunday Independent. In addition to standard Colemanisms such as the invocation of the Laffer curve as an established fact (tax rate increases “emaciate tax revenues”) he delivered the following assessment of PhD economists:
With their theoretical backgrounds and lack of real world forecasting experience, many PhD economists sadly don’t grasp these realities.
Worse still, they have tremendous influence. Last January a bevy of them tried to prove that our tax burden was too low. By measuring our tax revenues as a share of GDP — which is about one fifth higher than GNP — they made the tax share of the economy look one fifth smaller than it actually is. This is because the bit of GDP that isn’t included in GNP — multinational activity — generates relatively little taxes and shouldn’t be included. Their point wasn’t just illiterate. They have been a major contributor to the disastrous mistake the Government has made, a mistake that will create tens of thousands of job losses. It is a good reason why the suggestion of recruiting PhD economists to the Department of Finance — made unsurprisingly by PhD economists — is at best wrong-headed (in John McGuinness‘s case) and at worst self-serving (in the case of PhD economists who want taxpayers to feather their nests).
I’ll leave it to our commenters to discuss the issue of whether a ban on PhD economists is the best way to improve the quality of economic analysis in the Irish public sector. However, as one of the apparently illiterate economists referred to (the chief dunce, I reckon — damning evidence here and here — and this despite years of “real world forecasting experience” at the Fed) I will note that I don’t agree with Marc’s argument that our tax base is best measured by excluding sectors “that generate relatively little tax”. This is for two reasons.
First, multinationals do pay taxes on their repatriated profits and it is incoherent (illiterate?) to include those taxes in a measure of the tax burden but not include these profits in the measure of the tax base.
Second, it is a deliberate policy choice to set a low corporation tax rate. One can debate this choice on substantive grounds (and we have had some discussion about the importance of corporation tax to the Irish economy on this site) but it is simply not correct to argue that multinational profits are not part of the tax base.
Roel Beetsma, Massimo Guiliodori and Peter Wierts have just released a very interesting paper that examines the gap between announced fiscal plans and final fiscal outcomes for a panel of EU member countries. These authors find that ‘implementation errors’ are sizeable and in fact fiscal outcomes tend to be more correlated with these errors than with the original plans. Recommending reading: you can download it here.
This morning’s Irish Times contains a report that Irish pension funds have “indicated to the Government” that they “would be prepared to invest up to €6 billion over the next three years in a range of State infrastructure projects” under a plan “devised by the Construction Industry Council.” This would take the form of a specially issued government bond:
The funds would receive a return on their money over a period of possibly 20-25 years at a rate superior to that paid on Government gilts – possibly 2.5 percentage points above the rates offered for gilts.
The news article and accompanying commentary piece are wildly enthusiastic about the proposal. We are told that it is “innovative”, that it would be a “win-win situation for construction and the state”, that it would “protect about 70,000 jobs” and, that “after months of relentless bad news this proposal should be welcomed.” Best of all, we’re told that
it would sit “off balance sheet” and not count towards the crucial debt-to-GDP ratio, which has to be agreed with Brussels.
On RTE’s Morning Ireland, further support for this plan came from Fine Gael finance spokesman, Richard Bruton, who quibbled only that it didn’t go far enough. He instead put forward FG’s plan to spend €11 billion on energy, environmental and communications projects, funded by the Pension Reserve Fund and off-balance-sheet borrowing by a new state utilities agency, as a better approach.
This all sounds like good news—potential for bipartisan agreement on innovative ways to stimulate the economy. However, it is my opinion that these plans are bad ideas that are being mis-sold to a public desperate for positive proposals to “do something” to help the economy. Let me spell out a number of reasons why I take this position.