Category: Political economy

Historical Origins of Ireland’s Low Corporation Tax Regime

Readers might be interested in this analysis of the (bureaucratic and electoral) politics of the introduction of export profits tax relief in 1956, available here. The abstract is as follows:

T. K. Whitaker and Seán Lemass are generally credited with effecting the policy shift from protectionism to outward orientation. Ireland’s low corporation tax regime, however, has its origins in the export profits tax relief (EPTR) measures introduced by the second inter-party government in 1956. EPTR was introduced at the behest of the Department of Industry and Commerce in the face of long-standing opposition from Revenue and the Department of Finance. Industry and Commerce at the same time successfully thwarted the desires of the Taoiseach, the Department of Finance and other state agencies to have restrictions on foreign ownership of industry repealed. These apparently contradictory positions were rooted in the historical legacy of protectionism. The inter-party Taoiseach, John A. Costello, downplayed the connection between EPTR and foreign investment in an apparent attempt to deprive Fianna Fáil of an opportunity for controversy. Its introduction hastened the end of Fianna Fáil prevarication on the issue of foreign ownership.

The importance of the intense electoral competition of the period is also frequently ignored in accounts of the policy shift towards outward orientation. Following sixteen years of unbroken Fianna Fáil rule, the next four general elections brought four changes of government. Along with the depth of the 1950s recession, this forced Fianna Fáil into a comprehensive reexamination of its industrial strategy. The economic thinking of the major political parties co-evolved, and many of the institutional innovations of the period, including the Capital Investment Advisory Committee, the Industrial Development Authority, the early Córas Tráchtála, and, of course, EPTR, were the result of inter-party government initiatives.

The defeat inflicted on Finance by the Department of Industry and Commerce partly motivated Finance’s work on Economic Development, the 1958 publication of which was important in providing political cover for Fianna Fáil’s U-turn on overall economic strategy.

“Can Europe Be Saved?” by Paul Krugman

Paul Krugman has a thoughtful survey of the Euro crisis in this week’s New York Times Magazine (forthcoming on Sunday but available on-line now).  This is not stockbroker-economist-type research, which tends to be long on buzzwords and hyperbole.  It is a well-reasoned feature-length review with some policy suggestions.  It has a central focus on Ireland and the other troubled peripheral states.

Reputation

Some blog readers have bristled at invoking “reputational damage” as an argument against policies such as defaulting on bank liability guarantees. I have sympathy with this reaction given the elasticity of the concept, and because it is often thrown out as a sort of argument stopper. But there is still no getting away from the fact that Ireland’s reputation for institutional soundness matters for both domestic and international investment. It is hard not to worry that this reputation is being damaged by some recent crisis management policies.

Continue reading “Reputation”

Eichengreen and the European Commission on haircuts

Barry Eichengreen has a column at Project Syndicate.

Meanwhile, the European Commission reminds us of its political sophistication and deep-seated respect for democracy here. (HT Oliver Vandt.)

The Red C opinion poll

We are into political economy territory bigtime now, and I don’t think economists can ignore the constraints that this may impose going forward.

So it would be wrong not to have a thread on the latest opinion poll, which shows Sinn Féin leap-frogging Fianna Fáil into third place. Pretty predictable really. Presumably the boffins from Brussels and Frankfurt have factored this sort of thing into their calculations?