Archive for the ‘Uncategorized’ Category

Reminder on Blog Etiquette

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Friday, October 31st, 2014

The purpose of this blog is to provide information/analysis on the Irish economy.   While many commenters make valuable contributions,  comments should focus on the topics under discussion.  Comments on the integrity (broadly defined) of individuals are not tolerated.

Unicef’s Report Card

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Wednesday, October 29th, 2014

Worth going through, here are the highlights, download the whole report here (.pdf).

  • Ireland ranks 37th of 41 OECD countries, ahead of Croatia, Latvia, Greece and Iceland in a league table measuring relative changes in child poverty.
  • The recession has hit 15-24 year olds especially hard. Ireland ranks 14th out of 41 countries in a league table measuring the change in NEET. The NEET league table refers to young people who are “Not in Education, Employment or Training” increased by one point to 16.1%.
  • In a Gallup poll surveying people’s perceptions of how their lives have changed Ireland ranks 38th out of 41 countries across the OECD, ahead of Turkey, Cyprus and Greece. Irish families are experiencing additional stress and have a lower overall satisfaction with life. The data further shows that people do not believe children in Ireland have the opportunity to learn and grow every day.
  • 18 OECD countries recorded a reduction in child poverty during the same period, including Chile, Australia and Poland, which saw a reduction of 7.9%.

I found the charts on pages 8 and 9 very interesting as well.

Results of Comprehensive Assessment

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Sunday, October 26th, 2014

The relevant documents published by the ECB are here.

Question on measuring foreign risk capital inflows during the Irish financial sector recovery

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Saturday, October 25th, 2014

One of the key drivers behind the better-than-expected recovery of the Irish financial sector has been the strong inflow of foreign risk capital, particularly from U.S. “vulture funds” as they are inaptly named. This healthy demand for Irish banking assets has allowed the PCAR and PLAR plans for the domestic banks, and the unwinding of NAMA, to progress successfully. Similarly healthy demand for the Irish assets of foreign banks, such as Irish loan portfolios sold by Ulster Bank, has also contributed indirectly to the Irish financial sector’s partial recovery.
There is a risk capital inflow when a foreign institution buys a troubled loan portfolio or property portfolio from an Irish bank, or from an Irish subsidiary of a foreign bank, or from Nama. These risk capital inflows are not intermediated through the Irish banks and do not appear on their balance sheets. Prof. Brian O’Kelly (DCU) and I were able to trace the 2000-2009 destabilizing inflow and sudden outflow of foreign credit into the Irish banking sector using the aggregate Irish banking sector balance sheet Table A4.1 published by the Irish Central Bank. Question: how can one measure this new source of risk capital inflows? It seems healthy and stabilizing rather than (like in 2000-2009) unhealthy and destabilizing, but it still deserves to be measured accurately. Is it necessary to list all the individual deals and add them up? Has some hardworking analyst done that already? Is it possible to create a quarterly or annual time series? Answers on a postcard (or better on a spreadsheet) are welcome!

60th Economic Policy Panel

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Saturday, October 25th, 2014

The Economic Policy Panel took place over the last couple of days  – the draft papers are here.  Topics included the impact of fiscal austerity; the role of migration in adjustment; and estimates of the impact of the TTIP.

The Guarantee

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Friday, October 24th, 2014

The Irish Times preview the film with the screenplay writer Colin Murphy and producer John Kelleher here.  There is also a short clip from the movie to whet the appetite. 

Having seen the Fishamble stage production of  Guaranteed! last year I am looking forward to the film version which goes on limited release next week.  They probably took some artistic license with the adaption but hopefully not too much.

Budget 2015 and the 2014 Finance Bill

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Friday, October 24th, 2014

The 2014 Finance Bill was published yesterday and it is available here with related documents.

There’s not a lot new in the Bill.  One of the very minor changes relates to mortgage interest relief, with the relief now available to Income Tax payers in Ireland (who derive the bulk of their income in Ireland) for qualifying loans on PPRs in the entire European Economic Area rather than just Ireland.  There are plenty of other minor changes.

On the changes to corporate residency rules announced in the budget The National Law Review in the US has published a useful article under the heading: Death of the “Double Irish Dutch Sandwich”? Not so Fast. re: Irish Incorporated Non-resident Companies.  It is available here.

Earlier in the week the Minister for Finance and the Opposition Finance spokespeople gave statements to the Dáil on the pre-budget statement of the Fiscal Advisory Council.  The transcripts of these Dáil statements are here.

“Have We Learnt Anything from the Crisis?”

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Tuesday, October 21st, 2014

The Bank of Latvia organised a conference on this topic last Friday: materials here.

The speeches by Coeure and Weidmann on the euro area are quite interesting;  I can recommend the presentations on Greece;  there were presentations on Ireland by myself and Craig Beaumont.

 

 

Budget 2015

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Wednesday, October 15th, 2014

There’s plenty to discuss from yesterday’s announcements but any OP is not likely to be followed by related comments.

All the relevant documents from the Department of Finance are here.

This is a summary of the aggregate budgetary changes (in €million).

Here are two vintages of the debt interest table.  First from the April 2013 SPU.

And this from yesterday’s Economic and Fiscal Outlook:

There are lots of opinions I’m sure on how this (temporary?)  improvement was used.

Economics and Psychology Workshop

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Sunday, October 12th, 2014

The seventh annual one day conference on Economics and Psychology, co-organised by researchers from UCD, ESRI and NUIM, will be held on October 31st in the UCD Geary Institute. The purpose of these sessions is to develop the link between Economics, Psychology and cognate disciplines in Ireland. A special theme of these events is the implications of behavioural economics for public policy though the workshops have covered work across all areas of intersection of Economics and Psychology. Programmes from the previous six events are here. We welcome students, academics, policy-makers, industry representatives and others with an interest in this area. Registration is free of charge but you should sign up on the link below if you are attending. Other questions about the event can be addressed to Liam.Delaney@stir.ac.uk

Sign up to attend here 

The programme is available below.

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Mental Health and the Irish Economy

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Saturday, October 11th, 2014

A long literature has examined the role of  economic factors in promoting well-being. This has been a particularly active area for the last decade or so in Economics (summary of recent workshop we did on this topic with readings etc.,). Lately, a major topic of interest has been the role that mental health plays in producing economic outcomes at individual level. For example, an influential 2011 PNAS paper pointed to dramatic long-run economic effects of early life mental health conditions (see my review paper with one of the authors).  Richard Layard has called mental health the new frontier of labour economics and argued for mass expansion of mental health research and treatments. A big focus of the discussion has been the idea that mental health has been systematically discounted compared to physical health conditions in terms of health funding. Various proposals have been put forward to enhance the profile of mental health service in the UK (the recent speech by Nick Clegg one of most prominent).

A few major points to come from this literature and worthy of wide debate in the Irish context include:

The utility losses (for want of a better phrase) of mental health conditions are enormous even outside of effects on productivity and income (e.g. paper here). The interaction of this with physical conditions is also very important. Chronic pain is one particularly important area that should have greater priority in debates on health care (see Alan Krueger on this here).

Childhood mental health has dramatic effects on later life economic outcomes. There is a strong rationale to increase funding for child mental health research and services.  Many childhood mental health problems are practically ignored for the purpose of policy-making. For example, there exists almost no evidence on the long-run effects of prescribing stimulants to children diagnosed with ADHD with recent papers not exactly painting a glowing account of their usefulness (e.g. paper by Janet Currie here).  If you reflect on it, it really is an odd state of affairs that such important questions are neglected. The role of school mental health services for primary school children and teenagers is another area that is important to debate more given the hugely predictive effect of early mental health on life-long trajectories.

Lord Layard and others have argued for a substantial expansion of talk-therapies and a wider roll-out across society (short article outlining this view here; see also Layard and Clark’s recently released book Thrive). In the context of high rates of unemployment still in Ireland and in particular high rates of youth unemployment, this is worth discussing a lot more in the Irish context. Developing funding streams for large-scale referrals for brief talk-therapies is one of the most concrete suggestions to come from the recent literature.

There is a strong rationale for examining the proportion of health funding allocated to mental health in Ireland. It is widely documented  that mental health services in Ireland are given less priority compared to other countries (e.g. recent report here also O’Shea and Kennelly report).

Job Opportunity – Senior Researcher

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Friday, October 10th, 2014

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10-year bonds issued at 1.63%

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Thursday, October 9th, 2014

NTMA note here.

Europe and the World

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Wednesday, October 8th, 2014

IMF WEO here

 

Martin Wolf on the Geneva Report here

Mario Monti on public investment in Europe here

Ireland

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Wednesday, October 8th, 2014

Summary of ESRI QEB here.

Cronin-McQuinn paper on macro impact of fiscal policy here.

Central Bank macro-prudential regulations here.

Jim Stewart’s FT article on taxation of corporates here.

TASC Budget 2015 Briefing

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Wednesday, October 8th, 2014

Available here.

IMF 2014 Triennial Surveillance Review

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Tuesday, October 7th, 2014

Documents here.

Central Banking Boundaries

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Tuesday, October 7th, 2014

The UCD Economics Society speech by Patrick Honohan is here.

Dublin Economics Workshop 2014

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Monday, October 6th, 2014

This year the DEW, kindly sponsored by the Dublin Chamber of Commerce, will be held at the River Lee Hotel in Cork City on Friday and Saturday, the 17th and 18th of October. This year’s programme is here.

All bookings and reservations for the event can be made from here.

This is the 37th DEW annual conference and will begin with a number of parallel sessions on Friday afternoon.  Over the two days there will presentations across a range of topics from 35 people including policymakers, academics, commentators and members of the business community. 

On Friday evening Jerry Dwyer of Clemson University will give a plenary session on ‘quantitative easing’ while the final session on Saturday will be a panel discussion on ‘fiscal policy for the long haul’ and will include a contribution from Robert Watt, Secretary-General of the Department of Public Expenditure and Reform. 

Shifting tax burden and investment is way forward

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Saturday, October 4th, 2014

My thoughts on budgetary policy in the run up to Budget 2015 are here in today’s Irish Times.

Recruitment: Graduate Economists in the Irish Government Economic & Evaluation Service

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Wednesday, October 1st, 2014

Details here.

Presentation of Geneva Report: Thursday, October 2 at Noon

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Wednesday, October 1st, 2014

I will present the report in a Policy Institute seminar in TCD during 12-1 tomorrow Thursday in the IIIS seminar room (top floor, Arts Block). All welcome – no registration required.

A Macro-Prudential Policy Framework for Ireland

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Wednesday, October 1st, 2014

The Central Bank has published its framework here.

See also the new Economic Letters:

Macro-prudential tools and credit risk of property lending at Irish banks’ (Economic Letter Vol. 2014 no. 10) by Niamh Hallissey, Robert Kelly and Terry O’Malley

and

Housing market developments and household consumption,” by Daragh Clancy, Mary Cussen and Reamonn Lydon

Is there a fishing expedition going on?

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Tuesday, September 30th, 2014

Having read the Commission letter through it is clear that the game has moved to a different pitch.  The key issue is not the 1991 transfer pricing arrangement or its subsequently revision in 2007.  Yes, there was little objective basis for the 65/20 margins used and there was no reference to the arm’s length principle and the arrangement seemed to be reverse engineered, but there is nothing in the EC letter to say that the margins used were wrong and led to taxable income figures that were significantly out of line if a more careful and objective approach was taken in line with OECD standards (which weren’t introduced here until 2010). 

There is no doubt the 1991 advance pricing arrangement (APA) was put together in a pretty arbitrary manner as indicated by the minutes and notes taken by the Revenue official but that was as much the nature of the regime at the time rather than any special or preferential treatment to Apple.  The detailed nature of the records kept suggest it was not unusual.

Can it be argued that similar arrangements were not put in place for other companies?  APAs on a cost-plus basis for entities that engage in the activities attributed to the Apple’s Irish operations are not unusual. 

Apple Operations Europe:
- the "manufacture of a specialised line of personal computers."
-  providing "shared services to Apple companies in Europe, the Middle East and Africa (EMEA) region, including payroll services, centralised purchasing and a customer call centre."

Apple Sales International:
- the "procurement of Apple finished goods from third-party manufacturers"
- the "onward sale of those products to Apple-affiliated companies and other customers"
- "logistics operations involved in supplying Apple products from the third party manufacturers to Apple-affiliated companies and other customers."

Manufacturing, shared services, procurement and logistics are not high-profit activities.  The Commission can argue that the 65/20 cost-plus margins in the 1991 APA and the updated margins in the revised 2007 agreement were "wrong" but they are unlikely to result in a material difference to the amount of tax Apple would have had to pay in Ireland.  In monetary terms, any finding here would be relatively insignificant.

It is pretty clear that the issue has moved on and that these transfer pricing arrangements are no longer central.  The key issue is Apple’s intellectual property, or more precisely, the location of Apple’s intellectual property.

If we look at the five items requested by the Commission in June letter published this week none of them relates to the pricing agreements.  The information requested was:

- Provide the financial accounts of ASI and AOE for the period 2004-2013, in particular the P&L accounts.
- In the case of ASI single out in the P&L the amount of passive income each year and specifying if such passive income comes from Ireland.
- Provide the number of full time equivalent employees (hereinafter “FTE”) of ASI and of AOE over the same period (each end of reporting period).  Provide the FTE of the Irish branch of ASI and of AOE for the same period (each end of accounting period).
- Provide the cost sharing agreement between Apple Inc., ASI and AOE in all its variations since 1989 until the last modification.
- Describe in detail the type of intellectual property covered by the cost sharing agreement.

It is clear the Commission are focusing on the ASI subsidiary as a whole and not just its Irish branch.  The key issue is whether any of the intellectual property rights held by ASI are located in Ireland.   Last year’s US Senate report contained a good deal of information on ASI. The post continues below the fold with a a selection of quotes relating to ASI, and its parent AOE, in the Senate report.

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EC letter to Ireland on Apple State-Aid Case

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Tuesday, September 30th, 2014

The document is here.

There is a lot in it and the extracts here just focus on one element of it: a 1991 transfer pricing agreement that was done on a cost-plus basis, i.e. the profit attributed to the Irish operation was based on the costs incurred by the Irish operation.  This is not an unusual transfer pricing basis and, as expected, the amounts involved are relatively small, i.e. not billions.

The quirk is the structure of the agreement. For example the 1991 agreement for Apple Operations Europe was  [from paragraph 31]:

According to that ruling, the net profit attributable to the AOE branch would be calculated as 65% of operating expenses up to an annual amount of USD [60-70] million and 20% of operating expenses in excess of USD [60-70] million.

In the notes of a meeting (attendees not provided) it was said that (paragraph 37):

Following further discussions it was agreed that, subject to receiving a satisfactory outcome to the capital allowance question, to accept a mark-up of 65% of the costs attributable to the Irish branch. In addition it was agreed to accept a mark-up of 20% on costs in excess of $[60-70]m in order not to prohibit the expansion of the Irish operations.

On the two margins applied the Commission notes the following (paragraph 63):

Second, the margin on branch costs agreed in the 1991 ruling, as described at recital (31), is either 65% or 20% depending on whether the operating costs are below or above USD [60-70] million. According to the excerpt at recital (37), the reduction of the margin after a certain level above USD [60-70] million would have been motivated by employment considerations, which is not a reasoning based on the arm’s length principle. In particular, the two margins of 20% and 65% are relatively far apart and, should the margin of 65% effectively constitute an arm’s length pricing, the margin of 20% would be unlikely to fall within the same range of pricing, while applying the same degree of prudence.

There are other elements as well including transfer pricing for some intellectual property that can be explored in the document.

Geneva Report on the World Economy: “Deleveraging, What Deleveraging?”

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Monday, September 29th, 2014

This report (written Luigi Buttiglione, myself, Lucrezia Reichlin and Vincent Reinhart) will be available here from 9am this morning.  The VOX summary article is here.  FT report here.

Update: I will present the report in a Policy Institute seminar on Thursday 2nd October, 12-1, in IIIS seminar room at TCD.

McSharry on Trichet

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Sunday, September 28th, 2014

Former finance minister and EU commissioner Ray McSharry has contributed a chapter to the book of tributes to the late Brian Lenihan (Brian Lenihan, In Calm and in Crisis, Murphy, O’Rourke and Whelan (eds), Merrion Press 2014).

The chapter contains the following complete paragraph at page 111:

‘Brian had been keen to burn the big bondholders and we discussed this on a number of occasions. One morning I got a call about a quarter past eight and it was Brian. He told me that he was able to burn the bondholders and he was very happy because the European Central Bank President, Jean-Claude Trichet, had told him he could do it. This would have improved Ireland’s position significantly and it was going to be a big story, but later that day a now despondent Brian rang me back. He said Trichet had changed his mind because he realised that the main casualty if the bondholders were burnt would be big German and French banks. This was a disgraceful decision because the ECB is supposed to represent the interests of Europe generally, but they were clearly under the sway of the German and French banks. Even today, I still would not have much confidence in the ECB and until Europe gets a totally independent entity to defend its currency, the euro will remain a fragile currency’.

The context in McSharry’s piece indicates that

(i) the conversation took place in the summer or autumn of 2010, as the bank guarantee was coming to an end or had already ended, but prior to the EU/IMF programme, and

(ii) the bondholders referred to were bank, not sovereign, bondholders.

The phrase ‘…the main casualty if the bondholders were burnt would be big German and French banks…’ refers, it is reasonable to assume, not (or not only) to the direct losses that these banks would suffer as holders of the bonds in question (it is doubtful that they were big holders) but to the impact of default or haircuts in Ireland on their continued access to new debt funding from the bank bond market.

This reported conversation goes to the heart of Ireland’s unfinished business with the ECB. It is reasonable for the ECB president to display concern about the continued access of major European banks to important funding sources. Whether it is within the ECB’s powers under the statute to impose on an individual member state the cost of shoring up debt market access for Eurozone banks generally is not clear and will not be clarified until the European Court of Justice rules on the matter. The statute does not contain any explicit provisions conferring such an important power.

McSharry’s report of his conversation with Lenihan is further support for the view, which I have expressed many times, that Ireland should take a case against the ECB as provided for in the ECB statute. This is important for the credibility of the ECB as an independent central bank. Win or lose, referral of the matter to the ECJ would clarify whether the ECB possesses the powers it appeared to believe it had back in 2010. If the ECB can impose costs of policies aimed at stabilising markets across the common currency area on an individual member state it is time the member states knew about it.

Autumn 2014 Issue of Economic and Social Review

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Thursday, September 25th, 2014

Vol 45, No 3, Autumn (2014)

Table of Contents

Articles

Determinants of Pension Coverage and Retirement Income Replacement Rates – Evidence from TILDA PDF
Sanna Nivakoski 299–328
Income and Wealth in The Irish Longitudinal Study on Ageing PDF
Vincent O’Sullivan, Brian Nolan, Alan Barrett, Cara Dooley 329–348
Informational Efficiency in Distressed Markets: The Case of European Corporate Bonds PDF
Aurelio Fernández Bariviera, M. Belén Guercio, Lisana B. Martinez 349–369
The Socio-economic Gradient of Obesity in Ireland – Corrigendum PDF
David Madden 451–454

Policy Section Articles

The Risks of Intuition: Size, Costs and Economies of Scale in Local Government PDF
Mark Callinan, Ronan Murphy, Aodh Quinlivan 371–403
Winners and Losers on the Roller-Coaster: Ireland, 2003-2011 PDF
David Madden 405–421
The Impact of Training Programme Type and Duration on the Employment Chances of the Unemployed in Ireland PDF
Seamus McGuinness, Philip J. O’Connell, Elish Kelly 425–450

 

Nevin Institute: Quarterly Reports

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Wednesday, September 24th, 2014

The latest reports from the Nevin Institute are available here.

The Big Read: How Ireland’s Nama moved centre stage

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Monday, September 22nd, 2014

The FT continues its focus on Ireland with his long article by Vincent Boland – here.