Economic and Social Review, Summer 2018

The latest edition of the Economic and Social Review (Volume 49, No.2) is now available, containing the following research and policy articles:

Articles

The Socioeconomic Determinants of Crime in Ireland from 2003-2012 by Stephen Brosnan

Householder Preferences for the Design of an Energy Efficiency Retrofit Subsidy in Ireland by Matthew Collins, Seraphim Dempsey and John Curtis

Decomposing the Drivers of Changes in Inequality during the Great Recession in Ireland using the Fields Approach by Cathal O’Donoghue, Jason Loughrey and Denisa M. Sologon

Policy papers

The Impact of Free GP Care on GP Utilisation in Ireland by Paul K. Gorecki

Lifting the Lid: the Private Financing of Motorway PPPs in Ireland by Dónal Palcic, Eoin Reeves and Anne Stafford

A gap in current policies for Irish financial stability

In a recent speech, the Deputy Governor of the Central Bank of Ireland, Sharon Donnery, floated the prospect that the CBI might impose Counter Cyclical Capital Buffers (CCyB) on Irish banks, in order to guard against an unstable credit build-up in the currently strong economic environment. She also used the speech to discuss current conditions in the Irish financial system and review the macroprudential regulation policies of the CBI.

In many ways, Irish macroprudential regulation has been exemplary, but there is a glaring defect. Stanga et alia (2017 and 2018) compare 26 countries regarding mortgage arrears, financial stability and macroprudential policies, and Ireland’s profile is remarkably poor. As Stanga et al. note, controlling mortgage arrears is a key objective of macroprudential policies, and Ireland has very poor performance by this metric.

Ireland’s intractable mortgage arrears problem stems in large part from its defective legal system regarding loan security, with extremely limited lenders’ rights to collateral repossession. This defect in turn limits the reliability of Ireland’s quite restrictive macroprudential policies. As Stanga et al. state in their international overview:

“Better institutions – which improve judicial efficiency and make it easier for banks to enforce their rights – reduce the level of mortgage defaults. We consider several proxies for institutional arrangements and compile an index of institutional quality (IQ). We find a significant and negative relationship between IQ and mortgage arrears, both before and after the onset of the financial crisis – the higher the average quality of institutions, the lower the average mortgage default ratio (Figure 3). Moreover, the effects of macroprudential policies and institutional quality on mortgage defaults are mutually reinforcing. As illustrated in Figure 4, the effect of the MPI [Macro Prudential Index] on defaults becomes stronger in countries with better institutions. This result suggests that the effect of tougher macroprudential policies (that reduce household leverage and ultimately deter defaults) is amplified in an institutional environment conducive to an efficient judicial system with better protection for lenders’ rights and better enforcement capabilities.”

In addition to making banks more cautious, the limited-repossession system in Ireland makes the CBI more stringent in its macroprudential squeeze on credit flows. The prospect of a future spike in mortgage defaults is a key concern for the CBI, along with the high average loss-give-default in such a scenario. Because of this, the CBI is correct to stamp down hard on any signs of substantial credit flow into the domestic housing market.

When it comes to tackling the underlying defect in the Irish system (the too-limited repossession rights of lenders) the CBI has taken the line that this is somebody else’s problem. The CBI harangues the government endlessly on tax and spend policies (which are also not strictly the CBI’s problems) but when it comes to addressing the big defect in the Irish system regarding repossession, the CBI is as quiet as a mouse.

Who is paying for this unusual Irish system of extremely-limited repossession rights? Nondelinquent mortgage borrowers pay for the limited-repossession system since their mortgage interest rate includes the expected cost of default, capturing both a high probability of default and a high loss given default. Households looking for mortgages suffer in two ways: one, the Irish limited-repossession system makes mortgages more difficult to obtain; two, the system has a knock-on effect on housing construction: property development is a high-risk business and with no guarantee of mortgage-ready buyers, developers are extra-cautious.

The net effect of the Irish limited-repossession system on housing prices is indeterminate since there are opposite effects on the demand and supply sides. Cash buyers might benefit or lose on a net basis: they lose from the decrease in house construction (hence higher prices) but benefit from reduced bidding competition against mortgage-based buyers. Existing mortgage holders (other than defaulters) lose, and prospective mortgage holders lose twice over.

At the conclusion of her speech Donnery states:

“While there are uncertainties placing a precise value on the short-term benefits and costs, in the longer-term, increasing the margins of safety in an uncertain world is of benefit to all.”

Consider a young Irish household wishing to buy a family home using mortgage finance. In exchange for a mortgage loan, they might be willing to take a chance that they lose the house in some future scenarios if things turned out badly and they could not pay the loan back. They want a house now and are willing to take a chance on the future. Such a mortgage contract is not legally available to them in Ireland nowadays, since repossession can only be enforced in ridiculously limited circumstances and, due to this legal reality, banks are not allowed to issue mortgage loans unless they are virtually default-risk-free. The young household will have to rent or live with parents, for many years into their future.

The Irish financial system, where there is virtually no chance of receiving a default-risky mortgage and even less chance that such a loan could end with repossession, is not of benefit to all. For many people in many circumstances, risk is good.

Conniffe and Norvartis Prizes

The annual conference of the Irish Economic Association was held on the 10th and 11th of May at the Central Bank. More than 160 people attended the conference.

Alejandra Ramos (TCD) was awarded the Conniffe Prize for best paper by a young economist at the conference. Alejandra received the prize for her paper titled “Household Decision Making with Violence: Implications for Transfer Programs”.

Benjamin Elsner (UCD) and Florin Wozny (IZA) won the Novartis prize for the best paper in Health Economics at the conference. The winning paper was titled ” The human capital cost of radiation: Long run evidence from exposure outside the womb”

Prof Wendy Carlin (UCL) and CORE gave the ESR lecture “The Econ 101 paradigm is broken – what is the alternative?” Her slides from the talk

IEA Dublin ESR Guest Lecture 2018

Prof Olivier Blanchard (Peterson Institute) gave the Edgeworth lecture “Should we reject the natural rate hypothesis” His slides from the talk

Edgeworth Lecture IEA 2018

On the IEA website there are plenty of pictures from the conference

http://www.iea.ie/category/latest-news/

Gerard O’Reilly

Central Bank of Ireland: Financial Stability Notes

The Central Bank of Ireland has today published its first Financial Stability Note. This new series will cover financial stability related topics including those relating to risks and vulnerabilities facing the Irish and European financial system.

 

The Note, ‘Macroprudential Measures and Irish Mortgage Lending: An Overview of 2017’, by Christina Kinghan, Paul Lyons and Elena Mazza, provides an overview of new residential mortgage lending in Ireland in 2017. It describes key loan and borrower characteristics of loans subject to the Central Bank’s Mortgage Measures along with a comparison to lending in 2016. The Note also provides details on loans with an allowance to exceed the loan-to-value (LTV) and loan-to-income (LTI) limits, as permitted under the Measures. 35, 472 new loans are examined, with a value of €7.4 billion.

 

The key findings of today’s Financial Stability Note are:

 

  • First-time-buyers (FTBs) in 2017 had an average LTV of 79.8% and an average LTI of 3 times gross income. This represents a marginal increase on the average LTV and LTI ratios reported in 2016. FTBs also had a larger loan size, property value and income compared to FTBs one year earlier (see Table 4).
  • The average loan size and property value of second and subsequent buyers (SSBs) also increased compared to 2016. The average LTV for SSBs in 2017 was 67.6% and the average LTI was 2.6 times gross income (see Table 5).
  • A higher proportion of loans for both FTBs and SSBs were originated on a fixed interest rate compared with one year earlier.
  • 17% of the aggregate value of SSB lending exceeded the SSB LTV limit.
  • 18% of new primary dwelling home (PDH) lending exceeded the 3.5 LTI cap. This corresponds to 25% of the value of FTB lending and 10% of the value of SSB lending. A larger share of LTI allowances was accounted for by FTBs (74%) relative to SSBs (26%).
  • Allowances to exceed the LTI and LTV caps were allocated to borrowers in all four quarters of 2017 (see Table 7).

Irish Postgraduate and Early Career Economics Workshop

See below for the programme for the return of the Irish postgraduate and early career economics workshop (previously “ISNE conference”). All are welcome to attend. Thanks to School of Economics in UCD for providing financial support.

Irish Postgraduate Early Career Economics Conference

UCD Geary Institute

Friday May 4th

9am to 915am: Opening Remarks: Professor Liam Delaney (UCD), Dr. Lisa Ryan (UCD), Dr. Ben Elsner (UCD), Dr. Michelle Queally

Session 1a: 915am to 1045am Session 1b: 915am to 1045am
Sanghamatira Mukrhrejee (UCD) “Factors influencing early electric vehicle adoption in Ireland”. Aine Doran (QUB) “Population Dynamics in 19th century Ireland”.
Bryan Coyne (TCD) “The impact of a subsidised weatherisation scheme on Irish domestic energy consumption”. Gayana Vardanyan (TCD) “The long-run impact of historical shocks on the decision to migrate: evidence from the Irish Famine”.
Martin Murphy (ESRI) “Predicting farm’s non-compliance with regulations on emissions of nitrates”. Man Wing (Lorraine) Wong (UCD) “The effect of language proximity on the labour market outcomes of the asylum population in Switzerland”.
10.45am  to 11am Coffee
Session 2a: 11am to 1230pm Session 2b: 11am to 1230pm
Florian Gerth (CBOI) “Entry and Exit Dynamics of UK firms in the wake of the Global Financial Crisis”.

Patrick McHale, BA  (NUIG) & Thomas Plunkett, B.Pharm (NUIG) “Healthy Eating Meal Plan Preferences Amongst a University Population: A DCE Approach”

Tammana Adhikari (UCD) “Deals versus Rules?”. Kenneth Devine (UCD) “Mortgage Choice and Expectations”.
David Jordan (QUB) “Doomed to decline?: Interwar industrial performance and policy in Northern Ireland”. Ivan Petrov (UCD) “Information Asymmetry, Split Incentives, and Energy Efficiency in the Residential Rental Market”.
1245pm to 130pm Lunch
Session 3a: 130pm to 3pm Session 3b: 130pm to 3pm
Dora Tuda (TCD) “Does higher unemployment increase income inequality: evidence from European labour markets using a discrete choice experiment”. Iordanis Parikoglou (UCD/Teagasc). “The impact of innovation on farm level productivity: evidence from the Irish dairy sector”.
TBC Stefano Ceolotto (TCD). “The impact of moral licensing on pro-environmental behaviours”.
Philip Carthy (ESRI) “Is employment growth affected by the introduction of broadband services?: Evidence from Ireland”. Linda Mastrandrea (UCD) “Linking retail pricing policy with the decarbonisation of the electricity sector”.
Coffee 3pm to 315pm
Session 4a: 315pm to 445pm Session 4b: 3pm to 445pm
Deirdre Coy (UCD) “Health formation in an RCT Early Childhood Visiting Programme”. Eoin Corrigan (UCD) “Capricious Redistribution: The Scale and Impacts of the Local Authority Rent Subsidy”.
Anne Devlin (QUB) “Why is work-limiting disability in Northern Ireland so high?”. Stephen Byrne (CBOI) “Solving the wage puzzle: Does the ‘nonemployment rate’ explain wage dynamics?”.

 

 

 

41st Annual DEW Economic Policy Conference

The Dublin Economics Workshop (DEW) is holding its 41st annual Economic Policy Conference in the Clayton White’s Hotel in Wexford on 14/15 September 2018.

At this stage, the DEW is inviting submissions on the following six topics:

  1. All-island economy
  2. Transport & infrastructure
  3. Higher education
  4. Diversity
  5. Behavioural economics – application to policy
  6. Housing supply

All speakers will be asked to present for 15 minutes each. While a paper is not mandatory, it is preferred. If you would like to submit, please send a short abstract (c.300 words) to sarah@dublineconomics.com by 5pm on Friday 11th May.

 

Bringing the Household Back in: Comparative Capitalism and the Politics of Housing Markets

Some readers might be interested in this new working paper at UCD’s Geary Institute. http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201807.pdf

The core argument is that to understand heterogeneity in house price inflation, it is vital to understand the interactive dynamics in two markets that determine homeownership: First, the labor market, which shapes households’ incomes and; second, the market for mortgages, which shape households’ access to credit financial resources.

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SSISI Annual Symposium – Ireland 2040

The Statistical and Social Inquiry Society of Ireland will host its annual symposium this Thursday, 26th April 2018 at 5:30pm, in Chartered Accountants House, 47/49 Pearse Street, Dublin 2.

The topic of the symposium is: ‘Where’ will the Economy be in 2040? Delivering on the National Planning Framework

Speakers include:

  • Professor Henry Overman, London School of Economics and Director of the What Works Centre for Local Economic Growth
  • Paul Hogan, Senior Adviser at Department of Housing, Planning & Local Government and project manager for the National Planning Framework
  • Dr. Ronan Lyons, Assistant Professor of Economics at Trinity College Dublin

As ever, non-members are welcome to attend and participate in the discussion.

IEA 2018 – Preliminary Programme

IEA 2018. May 10 and 11 at the Central Bank’s headquarters in North Wall Quay. Please note Early Bird registration is open until April 25.

DAY 1: THURDSAY MAY 10TH 2018

Registration: 8:30-9:00

Session 1: 9:00 to 10:30

1A          Public Economics (1)

·        Respect your elders: evidence from Ireland’s R&D tax credit reform (Rory Malone, UL)
·        Paying over the odds at the end of the fiscal year: Evidence from Ukraine (Margaryta Klymak, TCD)
·        The Direct and Spillover Effects of Taxation: Evidence from a Property Tax Break for First-Time Buyers (Enda Hargaden, Univ of Tennessee)
·        Follow the Leader? The Interaction between Public and Private Sector Wage Growth in the UK (Arno Hantzsche, NIESR)

 

1B          Financial Economics (1)

·        Positive Liquidity Spillovers from Sovereign Bond-Backed Securities (Peter Dunne, CBI)
·        A Multi-Century Perspective on Return Predictability and Price Bubbles (Don Bredin, UCD)
·        Regulatory Penalties and Reputational Risk: Evidence from Systematically Important Financial Institutions (Sharadha V Tilley, DIT)

·        Resolving a Non-Performing Loan crisis: the ongoing case of the Irish mortgage market (Fergal McCann, CBI)

 

1C          Economics of Health and Education

·        The Human Capital Cost of Radiation: Long-Term Evidence from outside the Womb (Benjamin Elsner, UCD)
·        School Tracking and Mental Health (Mika Haapanen, Univ of Jyväskylä)
·        Household Decision Making with Violence: Implications for Transfer Programs (Alejandra Ramos, TCD)
·        Heterogeneity in Early Life Investments: A Longitudinal Analysis of Children’s Time Use (Slawa Rokicki, UCD)

 

Coffee: 10:30 to 11:00

Session 2: 11:00 to 12:30

2A          Economic History (1)

·        Rise and Fall in the Third Reich: Social Mobility and Nazi Membership (Alan de Bromhead, QUB)
·        The Economic Geography of Late Industrialisation: Local Finance and the Cost of Distance in Imperial Russia (Marvin Suesse, TCD)
·        Perfect Mechanics: Artisan Skills and the Origins of the Industrial Revolution. (Morgan Kelly, UCD)
·        Economic Policy and the Common Good (Rowena Pecchenino, NUIM)

 

2B          Applied Micro (1)

·        Determinants of households’ switching demand and execution (Shane Byrne, CBI)
·        The Take-Up of Medical and GP Visit Cards in Ireland (Claire Keane, ESRI)
·        Dodging the deadweight death-spiral: Efficiency and equity implications of UK electricity tariff reform (Niall Farrell, Univ of Oxford)
·        The education, work and fertility decisions of women (Barra Roantree, IFS)

 

2C          Monetary Policy and Asset Pricing

·        Monetary Policy Shocks and Bank Lending: Evidence from the euro area and United States (David Byrne, CBI)
·        The political economy of reforms in central bank design: evidence from a new dataset (Davide Romelli, TCD)
·        Commodity pricing: Evidence from Rational and Behavioural Models (Don Bredin, UCD)

 

Lunch: 12:30 to 13:30

Session 3: 13:30-15:00

3A          Economic History (2)

·        Patent Costs and the Value of Invention: Explaining Patenting Behaviour between England, Ireland and Scotland, 1617-1852 (Stephen Billington, QUB)
·        The Impact of the Great Irish Famine on Irish Mass Migration to the USA at the turn of the twentieth century. (Gayane Vardanyan, TCD)
·        The impact of depression and deglobalization on agricultural outcomes: Insights from interwar Ireland (Tara Mitchell, TCD)
·        Poverty and Population in Pre-Famine Ireland (Alan Fernihough, QUB)

 

3B          Multinational Firms

·        America First? A US-centric view of global capital flows (Martin Schmitz, ECB)
·        Corporate Taxation and the Location Choice of Foreign Direct Investment in the EU Countries (Iulia Siedschlag, ESRI)
·        U.S. corporate income tax cuts: Spillovers to the Irish economy (Daragh Clancy, ESM)
·        The contribution of foreign companies to the business economy and corporate income tax base in Ireland (Seamus Coffey, UCC)

 

3C          Financial Economics (2)

·        Clearinghouse-Five: Determinants of voluntary clearing in European derivatives markets (Pawel Fiedor, CBI)
·        The Implications of Tail Dependency for Counterparty Credit Risk Pricing (Juan Carlos Arismendi Zambrano, NUIM)
·        Money Market Funds and Unconventional Monetary Policy (Jacopo Sorbo, CBI)
·        What ‘special purposes’ explain cross-border debt funding by banks? Evidence from Ireland (Eduardo Maqui, ECB)

 

Coffee: 15:00-15:30

Session 4: 15:30-16:45

4A          Macroeconomics of the Irish economy

·        Disentangling Credit Shocks in the Irish Mortgage Market (Michael O’Grady, CBI)
·        Inside the “Upside Down”: Estimating Ireland’s Output Gap (Eddie Casey, IFAC)
·        Modelling External Shocks in a Small Open Economy: The Case of Ireland (Graeme Walsh, CBI)

 

4B          Labour Economics (1)

·        Employment and Hours Impacts of the National Minimum Wage and National Living Wage in Northern Ireland (Duncan McVicar, QUB)
·        Estimating the Effect of an Increase in the Minimum Wage on Hours Worked and Employment in Ireland (Paul Redmond, ESRI)
·        Taxpayer Responsiveness and Statutory Incidence: Evidence from Irish Social Security Notches (Enda Hargaden, Univ of Tennessee)

 

4C          Measurement & Methods

·        Macro and Micro Estimates of Irish Household Wealth (Mary Cussen, CBI)
·        New Characteristics and Hedonic Price Index Numbers (Peter Neary, Univ of Oxford)
·        Patterns of Firm Level Productivity in Ireland (Luke Rehill, DoF)

 

17:00-19:00

Economic and Social Review Guest Lecture: Professor Wendy Carlin (University College London and the CORE Project)

19:30 Dinner at ELY IFSC, CHQ Building
DAY TWO: FRIDAY MAY 11TH

Session 5: 9:00-10:30

5A          Macroeconomic Modeling

·        Shadow Bank run: The Story of a Recession (Hamed Ghiaie, Universite de Cergy-Pontoise)
·        Real exchange rate dynamics in New-Keynesian models – The Balassa-Samuelson mechanism revisited (Maren Brede, Humboldt-Universität zu Berlin)
·        Factor Misallocation and Adjustment Costs: Evidence from Italy (Robert Goodhead, CBI)
·        The Effect of Rents on Wages when Labour is Mobile Across Regions (Matija Lozej, CBI)

 

5B          Banking

·        EU banks and profit shifting: preliminary evidence from country-by-country reporting (Wildmer Daniel Gregori, EC)
·        Cross-border banking in the EU since the crisis: what is driving the great retrenchment? (Lorenz Emter, CBI)
·        Banking crises and investments in innovation (Oana Peia, UCD)
·        Pockets of risk in European housing markets: then and now (Jane Kelly, CBI)

 

5C          Agriculture & natural resources

·        Sea bass angling in Ireland: a structural equation model of catch and effort (Gianluca Grilli, ESRI)
·        Understanding Farmer’s Valuation of Agricultural Insurance: Evidence from Viet Nam (Anuj Singh, TCD)
·        Accounting for technology heterogeneities and policy change in farm level efficiency analysis: an application to the Irish beef sector (Maria Martinez Cillero, ESRI)
·        The impact of residential ‘weatherisation’ schemes on the domestic energy consumption of Irish households (Bryan Coyne, TCD)

 

Coffee: 10:30-11:00

Session 6: 11:00 – 12:30

6A          International Trade

·        The Heterogeneous Impact of Brexit: Early Indications from the FTSE (Ron Davies, UCD)
·        Research Dissemination, Distance and Borders (Lukas Kuld, TU Dortmund)
·        What’s Another Day? The Impact of Non-Tariff Barriers on Trade (Jonathan Rice, Central Bank)
·        Imported Intermediate Goods and Incomplete Exchange Rate Pass-Through into Export Prices (Alexander Firanchuk, TCD)

 

6B          Macroprudential Policy

·        An Early Warning System for Systemic Banking Crises – A Robust Model Specification (Michael Wosser, CBI)
·        The effectiveness of macroprudential policies in the euro area (Eóin Flaherty, CSO)
·        Macroprudential Policy, Uncertainty and Household Savings Behaviour (Conor O’Toole, ESRI)
·        Credit Booms, Macroprudential Policy and Financial Crises (Peter Karlström, Univ of Bologna)

 

6C          Political Economy & Institutions

·        Ebola, Resistance and State Legitimacy (Matthias Flueckiger, QUB)
·        Does Corruption Ease the Burden of Regulation? National and Subnational Evidence (Robert Gillanders, DCU)
·        Can labour market institutions mitigate the China Syndrome? Evidence from regional labour markets in Western Europe (Jan-Luca Hennig, TCD)
·        Refugees, migrants and the right-wing vote share: evidence from Sweden (Rachel Slaymaker, ESRI)

 

Lunch: 12:30-13:30

Session 7: 13:30-15:00

7A          Econometrics and Forecasting

·        Forecasting with FAVAR: Macroeconomic versus Financial Factors (Alessia Paccagnini, UCD)
·        Forecasting Irish Inflation after the crisis: Evaluating Multiple Bayesian Approaches (Shayan Zakipour-Saber, CBI)
·        Model Averaging in a Multiplicative Heteroscedastic Model (Alan Wan, City Univ of Hong Kong)
·        Phillips curves in the euro area (Laura Moretti, ECB)

 

7B          Macro-finance

·        Financial Crises, Macroeconomic Shocks, and the Government Balance Sheet: A Panel Analysis (Matteo Ruzzante, Universidade Nova de Lisboa)
·        Is Macroeconomic Uncertainty or Policy Uncertainty Priced in UK Stock Returns? (Jun Gao, UCC)
·        Eurobonds: A Quantitative Analysis of Joint-Liability Debt (Vasileios Tsiropoulos, CBI)
·        Constructing A Financial Conditions Index for the United Kingdom: A Comparative Analysis (Sheng Zhu, UCC)

 

7C          Applied Micro (2)

·        Crime Highways: the Effect of Motorway Expansion on Burglary Rates (Kerri Agnew, TCD)
·        Consumer Switching in European Energy Markets: A Comparative Assessment (Jason Harold, ESRI)
·        Expectations of future care needs and wealth trajectories in retirement (Rowena Crawford, IFS)
·        Expected Child Mortality, Fertility Decisions, and the Demographic Dividend in Low and Middle Income Countries (Mark McGovern, QUB)

 

Coffee: 15:00-15:30

 

15:30-17:15

Edgeworth Lecture: Professor Olivier Blanchard (MIT and Peterson Institute for International Economics)

 

17.30

Irish Economic Assocation AGM

 

Post Doctoral Researcher in Innovation Studies and Policy

May I draw your attention to the following post:Post Doctoral Researcher in Innovation Studies and Policy (funding for this position is expected to continue for 2 years) based at the University of Limerick, Ireland as part of a Science Foundation Ireland funded project under its Science Policy Research Programme.

 Led by Professor Helena Lenihan at the Kemmy Business School, University of Limerick, this project on evaluating the impact of science and innovation policies on the economy and society comprises a team of international and national experts (including collaborators from Warwick Business School and the Enterprise Research Centre, ZEW in Germany, KU Leuven and Queen’s University, Belfast) and policymakers. 

 Salary Scale: €36,854-€42,603 per annum. 

 Deadline for Application: Friday 20th April 2018

A full description of the advertised position and application procedure is available here 

New ‘Economics of Property Market’ online course at TCD

There is widespread agreement that Ireland lacks the housing policy expertise to solve its current housing woes. For example, Donal MacManus of the Irish Council of Social Housing made the case recently for third-level education in housing, given the small number of people with accredited housing policy expertise in this country.

To help address this skills gap, Trinity have developed an online course entitled The Economics of the Property Market. It is aimed largely at professionals without any formal training in economics whose work involves property/housing, including valuers, architects, engineers, solicitors and accountants, but is open to anyone with an interest in the property market.

The online course takes place April-June and comprises four sessions, which look separately at: understanding markets; the demand for property; the supply of property; and the economics of property market policy. More information, and a link to sign up for the course, is given at this link:
https://www.tcd.ie/Economics/CPD/index.php

The deadline for registering is Friday April 13th, the course is live on April 30 and all participants are expected to complete the four sessions within six weeks. Those who have further questions can contact me (firstname.surname at tcd.ie).

Economic and Social Review, Spring 2018

The latest edition of the Economic and Social Review is  now available (Vol 49, No 1, Spring 2018) containing the following articles:

The Cyclicality of Irish Fiscal Policy Ex-Ante and Ex-Post by David Cronin and Kieran McQuinn

The Base of Party Political Support in Ireland: A New Approach by David Madden

How do the Foreign-Born Rate Host Country Health Systems? Evidence from Ireland by Simone M. Schneider and Camilla Devitt

 

Policy Section Articles

Identifying Rent Pressures in Your Neighbourhood: A New Model of Irish Regional Rent Indicators by Martina Lawless, Kieran McQuinn and John Walsh

Universal GP Care in Ireland: Potential Cost Implications by Sheelah Connolly, Anne Nolan, Brendan Walsh, Maev-Ann Wren

State/Industry Medicine Pricing Agreements, Cost Savings and Counterfactuals: the Case of Ireland by Paul K. Gorecki

Final Reminer: IEA Deadline Feb 11th

The 32nd Annual Irish Economic Association Conference will be held at the Central Bank of Ireland, New Wapping Street, North Wall Quay, Dublin 1 on Thursday May 10th and Friday May 11th, 2018. Gerard O’Reilly (Central Bank of Ireland) is the local organiser (gerard.oreilly@centralbank.ie).

The ESR guest lecture will be given by Professor Wendy Carlin (University College London and the CORE project) and the Edgeworth Lecture by Professor Olivier Blanchard (MIT and PIIE).

The Association invites submissions of papers to be considered for the conference programme. Papers may be on any area in Economics, Finance and Econometrics.

The deadline for submitted articles is the 11thof February 2018 and submissions can be made through this site.

Four Cheers for Conor Skehan

On Wednesday, Conor Skehan, outgoing head of the Government’s Housing Agency, was grilled by the Oireachtas Housing Committee for the mortal sin of noticing things and speaking honestly about them. Mr. Skehan claimed that some individuals in Ireland were gaming the public housing system, in order to become eligible for public housing ahead of others. Members of the Committee, devout in their observance of the Holy Laws of political correctness,  castigated Mr. Skehan for his public remarks and the evidence he presented to justify them. They noted that it is not possible that a housing-eligible person could game the system – as PC dogma clearly states, lower income individuals are gifted with Immaculate Conception (born without sin) and can do no wrong. So the evidence that Mr. Skehan presented had to be false, and his presentation of it before the committee was proof of his fall from a PC state of grace.

On the plus side, there was at least one honest person in the Oireachtas on Wednesday.

Central Bank SME Market Report 2017 H2

The Bank’s SME Market Report for the second half of 2017 was released this week. The report can be found here.

Key results from the report include:

  • Annual gross new lending to non-financial, non-real estate SMEs in Q3 2017 is 24 per cent higher than a year ago.
  • The SME lending market has become more concentrated in the last six months, with fewer banks holding an ever larger market share.

  • The share of SMEs in Ireland reporting they did not apply for bank loans because of sufficient internal funding was 50.4 per cent in September 2017.

  • SME loan rejection rates in Ireland have increased to 13.9 per cent in September 2017 from 8.2 per cent in March 2017.

  • Interest rates for SME loans stood at 5 per cent in July 2017, high in a European context.
  • When scaled relative to domestic demand, new loan issuance to SMEs in Ireland is very low compared to European comparator economies.
  • The share of SMEs transitioning into default between the period December 2016 and June 2017 is 2.4 per cent. The highest transition rates reported in the Wholesale/Retail sector (2.9 per cent) and the South-east (3.4 per cent).

We have published the data behind each chart for the first time. The spreadsheet can be found here.

Call for Papers: Fintech and financial risk management: evolution or revolution?

A joint academic-practitioner conference on the theme Fintech and financial risk management: evolution or revolution? will be held in at the Institute of Bankers, Dublin, Ireland on Monday September 10th, 2018. The conference is organized by the Valuation and Risk Cluster (VAR), the Department of Economics, Finance & Accounting at Maynooth University, the Smurfit School of Business at University College Dublin, and the Central Bank of Ireland.

New financial technologies are producing widespread changes to financial markets and financial systems. The effects of the fintech revolution on risk measurement, analysis and control are not yet clear. How does fintech change the risk profile of financial markets? Can existing risk management systems cope with the new environment? What changes are required to existing financial risk management methods and systems? Will innovative applications of fintech improve risk measurement and management

Potential topics include:

• Flash crashes

• Risk measurement and control of black-box trading algorithms

• The impact of high speed trading on dynamic rebalancing and hedging

• Natural Language Processing (NLP)-based artificial intelligence and its trading impact

• High speed trading networks and systemic risk

• Information and noise cascading in networks

• Stability and liquidity of blockchain protocols

• Portfolio risk management with automated advisor systems

• Credit risk in fintech lending systems

• Fintech’s impact on the business models of existing financial institutions

• Applications of machine learning in risk management systems

Please send papers or detailed proposals by May 31st, 2018 at the latest to Na.Li@ucd.ie; all papers must be submitted electronically in adobe pdf format. There will be both main conference sessions and poster sessions. The academic coordinators for the conference are Gregory Connor, John Cotter and Trevor Fitzpatrick, who can be contacted at Gregory.connor@mu.ie,  John.cotter@ucd.ie,  and Trevor.Fitzpatrick@centralbank.ie. The administrative manager for the conference is Na Li who can be contacted at Na.Li@ucd.ie. There are no submission fees or attendance fees for the conference. We are grateful to the Science Foundation of Ireland and the Irish Institute of Bankers for their generous support of this conference. The Valuation and Risk Cluster (VAR) is a collaboration between University College Dublin, Maynooth University, Dublin City University and industry partners, with support from the Science Foundation of Ireland.

New SSISI journal (170th!) published

The proceedings of the 170th session of the Statistical and Social Inquiry Society of Ireland can now be accessed online. Links to the articles are listed below. The hard copy of the publication will be available from Spring 2018.

·         Dublin House Prices: A History of Booms and Busts from 1708-1949

Deeter, Karl; Quinn, Frank; Duffy, David (SSISI, 2017)

·         Towards an Irish Recorded Crime Index

Linehan, Timothy (SSISI, 2017)

·         Barrington Lecture – Seventy Years of Personal Disposable Income and Consumption in Ireland

Stuart, Rebecca (SSISI, 2017)

·         The Irish Single-Currency Debate of the 1990s in Retrospect

Barry, Frank (SSISI, 2017)

·         Income-Tested Health Entitlements: Microsimulation Modelling Using SILC

Callan, T.; Colgan, B.; Keane, C.; Logue, C.; Walsh, J.R.(SSISI, 2017)

·         Symposium – Globalisation, Inequality and Populism

Nolan, Brian (SSISI, 2017)

·         Symposium – Who is the Populist Irish Voter?

Reidy, Theresa; Suiter, Jane (SSISI, 2017)

·         Symposium – Globalisation, Inequality and Populism

Layte, Richard; Landy, David (SSISI, 2017)

·         The Recovery in the Public Finances in Ireland following the Financial Crisis

Smyth, Diarmaid (SSISI, 2017)

·         Using Administrative Data to Change Perception about Caregiving and Improve the Evidence Base Related to Volunteering

O’Reilly, Dermot; Rosato, Michael (SSISI, 2017)

·         Memoriam: Thomas Kenneth Whitaker

·         Proceedings of the Statistical and Social Inquiry of Ireland One Hundred and Seventieth Session: 2016/2017

 

Local Property Tax: Change for better or worse?

Local Property Tax: Change for better or worse?

 

Introduction.

Local Property Tax (LPT) was introduced in 2013 using valuations for May of that year as a base. The tax is due for re-basing on 2019 property values, and this is likely to produce a mixture of political opportunism and panic which may well lead to “reforms” which fundamentally undermine the tax.

 

Residential property taxation is part of the local or municipal tax base in most countries[1]. The traditional Irish property tax (domestic rates) was so archaic and badly-designed that it easily fell prey to political opportunism and was abolished in 1977. Rates on Commercial and Industrial property remain, and are probably in need of reform, but that is an issue for another day.

 

The malaise of property taxation is closely linked to the decay of local government in Ireland. Local Authorities have very little truly independent taxing power; the residential LPT operates under national rules and collection is done by a central government agency – the Revenue Commissioners. Local Authorities have lost many of their responsibilities: for water services, many road services, garbage collection, and so forth. Such powers that they have are often tightly circumscribed by central government directives and rules. No wonder local politicians, who have so little real power over local policy issues get involved in the politics of Palestine, Catalonia or Myanmar. Worthy causes maybe, but not local ones.

 

If we are to have local government which actually works and which is worthwhile and has some real policy discretion, then it will have to have some degree effective control over its tax revenues. This is essential: local government which is almost totally dependent on central government for its revenue, will forever be rattling the begging bowl and will never have to ask how to pay for the local public goods which citizens want. Just pass the buck to central government.

 

Local Government is often quite rightly regarded as inefficient and ineffective. The LPT provides a good example: the local authorities’ collection of the LPT’s predecessor (the Household Charge) resulted in much lower compliance than that subsequently achieved by Revenue. Local Authorities have also been ineffective in collecting water charges for commercial users, and have had chronic problems with rent and mortgage arrears. The latter problems are undoubtedly explained in part by social factors, but overall the operational efficiency of local authorities has not been impressive, which may explain why they have been stripped of so many functions.

 

Putting this right will not be easy. The culture of local politics has been degraded by its unhealthy relationship with the centre. Local councillors become adept at rattling the begging bowl. Given that getting elected to a local council is the main route to an eventual career in national politics, this is the worst possible apprenticeship for national politicians, who often tend to have the same attitude to financing national public expenditure: a total disconnect between spending money on something and having to solve the problem of how to pay for it.

 

A report[2] by Dr Don Thornhill prepared as part of the 2016 Budget documentation contains many proposals aimed at preventing the tax from being degraded in various respects and also at improving its structure. Dr Thornhill estimated that substituting 2016 for 2013 property valuations would produce a revenue increase of about 29%, so we could say that making a “big bang” change and using 2019 valuations would probably produce an increase in LPT charges of at least 50%. I do not intend to look at details of yield estimates or how this might vary from area to area. For the purposes of a very general discussion I will take a 50% increase as a reasonable first approximation if there were to be a “big bang” in 2019. Clearly this sort of increase is what scares politicians to death, and scared politicians are liable to propose measures which are both unfair and inefficient.

 

Looking at Don Thornhill’s proposals for changes to LPT, I quickly became aware of the similarities between his ideas and mine. Maybe this is not surprising: familiarity with the same fundamental concepts in public finance and the political economy of taxation might be expected to lead to a convergence of views. Don Thornhill’s proposals are worked out in much greater detail than anything I attempt to outline here, but getting the big picture right seems to me to be an essential first step.

 

Some proposals:

(i) Have a full property revaluation in 2019. The impact of this can be drastically reduced, but allowing valuations to become hopelessly out of date runs the danger of LPT valuations becoming like the old rateable valuations: works of fiction bearing no relation to reality. Ultimately doing nothing would undermine the LPT completely (something that some politicians[3] want, of course).

(ii) Avoid a “revaluation shock”by adjusting the tax rates (at present 0.18% up to €1m and 0.25% for that part of values in excess of €1m) so that the yield increase is relatively modest (say 10%). On a simple back-of-the envelope calculation, rates of 0.12% and 0.20% with a threshold of €1.5m might come close to achieving this.

(iii) At present, some of the LPT revenues arising in a local authority area are redistributed from high to low income areas via a centrally-administered fund. This has the effect of weakening the net local revenue effect of any decision the local authority makes (such as the discount or premium to apply in any year), Effectively any increase in revenue may be diluted by having to pay some into a central fund. The solution (also recommended by Don Thornhill) is to leave local authorities with 100% of the LPT revenues from their area and thus 100% of the revenue consequences of any decisions they take. This implies a separate central government grant mechanism to give local authorities an acceptable degree of resource equalisation, It is essential however that this is based on relevant structural factors such as demography, population density, estimates of local income levels etc.

(iv) Consider adjusting the amount of discretion available to a local authority to something in excess of the present ” 15%. This might slowly educate local authorities and councillors in exercising greater fiscal responsibilities[4].

(v) As Don Thornhill recommends, re-title the tax as a Local Council Tax. A minor point maybe, but in an era of spin getting the title right and emphasising the responsibilities of the local council would be worthwhile.

 

Mistakes to avoid.

In any discussion of reform it is important to avoid making things worse, especially as some really bad ideas have been aired.

 

  • Earlier this month (Jan 15th, 2018) the Sunday Times in an editorial seemed to favour the idea of basing the LPT on house size[5]. Why should someone in 4-bedroom semi in Dublin 4 pay several times what a person in a similar house in Leitrim or Roscommon pays? Consider a household with a total income of, say, €60.000. A four-bedroom house in Dublin 4 will probably cost over €800,000 and will be way beyond the what is affordable to buy for most €60,000 income households. The house of similar size in Leitrim or Roscommon might be bought for €200,000 to €300,000, and be within the budget and borrowing power of a €60,000 income household. So for this reason alone (there are others), it is a fair bet that the incomes of people living in similar-sized houses will be higher in areas with higher property values. Sure, high property values may imply high mortgage debt, but in the long term when retirement beckons the Dublin 4 household will have much better options for downsizing and equity-release than the someone with an asset worth less than €300,000. High value areas have in general residents with higher income and wealth.

 

  • Landlords would no doubt argue that it is inequitable that their tenants do not have to pay LPT whereas owner-occupiers do. (They really mean that it is unfair that they have to pay, but leave that aside). This raises interesting questions about the incidence of LPT. One might argue that in the long-term rentals have to cover the full economic cost to landlords, and that otherwise they will exit the market. In that case (barring distortions such as rent controls) the long-run incidence of LPT would be on tenants. However in the current state of the housing market, landlords as owners of a relatively fixed-supply of properties are likely to be making economic rents[6] and the incidence of the tax would be on them. Also in the long run we would expect LPT to capitalised into (slightly lower) house valuations so its incidence would be on property owners in general, whether owner-occupiers or landlords[7]. Overall I see little merit in changing the current arrangement for landlords – and fortunately unlike other not-so-good ideas there is little political momentum behind such a proposal.

 

Some more general conclusions.

  • There is a real need to reform local government and to gradually give it more real powers. This is now a well-worn cliche, but one seldom hears any substantive discussion of the issues involved.
  • I say gradually give local authorities more powers because the present culture of local politics does not lend itself to fiscally responsible behaviour, so local councillors face a steep learning curve. Fiscal responsibility is an essential part of political and policy responsibility. Giving local authorities power without (fiscal) responsibility reminds me of Stanley Baldwin’s remark on the subject. A properly adjusted LPT is an obvious route to greater local fiscal responsibility.
  • We should not get too hung up on questions of progressivity or fairness. Overall the LPT may not be quite as progressive[8] as Don Thornhill suggests, but it only accounts for about 1% of all tax revenues and there are other larger taxes in the system which are decidedly more regressive. In any event it is the overall progressivity of the combined tax and benefit system which really matters and in this respect Ireland scores very highly.
  • It has been argued that higher LPT could be traded off against lower income tax rates. While this is in principle a valid proposition, especially as property taxes are held to be less distortionary, in practice it is a difficult argument to sustain. A doubling of LPT revenues would fund a very small cut in Income Tax or USC rates. LPT reform should be done on its own merits as a mainly a local authority issue. While a relatively minor tax in relation to the total national tax take, LPT could and should be central to the operation of effective and responsible local government.

 

[1] The obvious reason being that taxation specific to a local area which is part of a single national economy is best based on relatively immobile assets.

[2] Review of the Local Property Tax (LPT): http://www.budget.gov.ie/Budgets/2016/Documents/Review_of_Local_Property_Tax_pub.pdf

 

[3] Somewhat bizarrely, politicians on the extreme left.

[4] Don Thornhill advocates authorities being able to vary the rate of tax and perhaps the size of the bands. This seems to me an un-necessary complication. One can achieve much the same effect on tax bills by using the ” 15% instrument. Keep it simple should be the watchword.

[5] Quite predictably, that reservoir of bad economic ideas (the Irish Times letters page) recently published a plea for a floor area-based tax. Also quite predictably, it was from that well-known deprived area, Dublin 6.

[6] i.e. rents in the classic economic definition considered as a surplus over and above the supply price.

[7] The question of incidence can get quite complicated. If I own a house I have to pay LPT whether I occupy it or rent it out. In that case how does it enter into my decision? If I sell it, and if LPT is capitalised into the price, how does that effect my decision?

[8] While LPT may take absolutely more money from those with higher incomes, it does not follow that it takes a greater proportion of income from those with higher incomes, which is the classical definition of the concept of progressivity.

Boris Builds a Bridge

In a competitive field yesterday’s bridge across the English Channel, proposed in a solo run by foreign secretary Boris Johnson, must rank as the zaniest piece of headline-hunting since the Brexit referendum. The occasion was the visit to Britain of French president Emmanuel Macron, to meet Theresa May rather than Boris. May and Macron agreed an Anglo-French committee to consider future, but unspecified, collaborative projects, just the ticket to fill out an otherwise thin official communique from the two leaders. How to upstage?

The Boris Bridge worked a treat, reported deadpan as a news story by the BBC, prominent in the Daily Mail and the front-page lead in the Telegraph. The Express was able to offer a real scoop:

‘Emmanuel Macron has jumped at the chance of building a giant bridge linking the UK and the EU after Boris Johnson floated the idea during meetings yesterday, it has been revealed.’

Revealed to the Express only. Denials that the bridge is on any official agenda were duly issued on both sides of the channel and the wretched FT, read mainly by foreigners, did not mention the story at all.

A day later the BBC and the newspaper websites finally got round to phoning a few engineers, some of whom were unsporting enough to mention the last two great Anglo-French collaborations, Concorde, cost over-run 450%, and the channel tunnel, a snip at just 80% over budget.

The British media, including the BBC, have done an appalling job in covering the continuing Brexit circus.

Call for Papers – 6th Annual NERI Labour Market Conference – 22 May 2018

The sixth annual NERI Labour Market Conference will be held on Tuesday 22 May 2018 in association with NUI Galway’s Whitaker Institute for Innovation and Societal Change. The conference will run from 10:00am -16.15pm (followed by a reception until 16.45pm) and will include research papers on various aspects of the Irish labour market and Irish labour market policy. The NERI Labour Market Conference is intended to provide a forum for the presentation of research papers on labour market issues (North and South) and is held in May each year. Presentations from researchers, academics, policy makers and labour market practitioners are invited for this forthcoming conference. Those interested should submit a title and brief abstract (max 400 words) to tom.mcdonnell@nerinstitute.net Possible topics include but are not limited to any part of the following thematic areas:

  1. Employment, Unemployment and Labour Market Transitions (Migration, Age, Gender)
  2. Earnings, Labour Costs and Affordability
  3. Productivity, Growth and Human Capital
  4. Precariousness, Low Pay, Working Conditions and Job Quality
  5. Labour Market Participation and Activation, Demographics and Labour Supply
  6. Labour Market Institutions: Minimum/Living Wages, Collective Bargaining, Workplace Regimes
  7. Distribution and Labour Market Inequalities, Fiscal Policy and the Labour Market
  8. Pensions and Pensions Policy

Registration The conference is open to all who are interested and is free to attend. However, you must register your intention to attend the conference by contacting info@nerinstitute.net

Key Dates

Submission Deadline: 13 April 2018 (Friday)

Notification of Acceptance: 24 April 2018 (Tuesday)

Registration Deadline: 18 May 2018 (Friday)

Conference Date: 22 May 2018 (Tuesday)

Contact: tom.mcdonnell@nerinstitute.net

Call for Papers: Irish Economics Postgraduate and Early Career Conference 2018

Call for Papers: Irish Economics Postgraduate and Early Career Conference 2018

The Irish Society for New Economists (ISNE) workshop for postgraduate and early career researchers will take place in University College Dublin Geary Institute for Public Policy on Friday May 4th. The event is aimed at PhD students and early career researchers across the Irish universities. It will take the form of thematic sessions with faculty discussant input at each session, along with keynote talks, and engagement with policy and industry. We welcome submissions of papers from PhD students and early career researchers in institutions on the island of Ireland.

The ISNE was formed to encourage research, information and social links among economists at the early stages of their careers in Ireland. From 2001 to 2013, the Irish Society for New Economists (ISNE) held eleven workshops in Ireland for postgraduate and early career researchers. The events were run mostly by PhD students in the Universities, including events hosted by UCD, TCD, Limerick, Maynooth, Cork, and Galway. The conference is intended for advanced Masters students, PhD students, and young professionals in the early stages of research working in the Republic of Ireland and Northern Ireland. We strongly encourage those working on economics-related research to submit. Eligibility to present is not related to age. The meeting will feature the work and findings of scholars in economics and related fields, and will provide an excellent opportunity to present your own research results and work in progress.

As the conference is free to attend, no financial assistance for travel or accommodation can be provided. Researchers wishing to submit their work for consideration are advised to submit an extended abstract (300-500 words) at this link. Applicants are asked to include their name, institute or affiliation, current academic status (PhD, Young Professional, Masters) and JEL code(s) for their research on submitting an abstract. All of the above information should be attached in a /single PDF or Word File/. The deadline for the abstract submission is 15th April 2018. Applicants will receive notification shortly afterwards. The organising committee consists of Dr. Lisa Ryan, Dr. Benjamin Elsner, and Professor Liam Delaney at UCD, and Dr. Michelle Queally at NUI Galway. Please direct inquiries to liam.delaney@ucd.ie

Latest Issue of the Economic and Social Review

The Economic and Social Review has just published its latest issue (Vol 48, No 4, Winter 2017)

Articles
Introduction: 50 Years of Social Research at the ESRI
Helen Russell, Emer Smyth

Non-Monetary Indicators and Multiple Dimensions: The ESRI Approach to Poverty Measurement
Dorothy Watson, Christopher T. Whelan, Bertrand Maître, James Williams

Gender Equality in the Irish Labour Market 1966-2016: Unfinished Business?
Helen Russell, Frances McGinnity, Philip J. O’Connell

Out-of-School Social Activities among Immigrant-Origin Children Living in Ireland
Merike Darmody, Emer Smyth

An Irish Solution…? Questioning the Expansion of Special Classes in an Era of Inclusive Education
Joanne Banks, Selina McCoy

Policy Section Articles
Atypical Work and Ireland’s Labour Market Collapse and Recovery
Elish Kelly, Alan Barrett

Supporting Pension Contributions Through the Tax System: Outcomes, Costs and Examining Reform
Micheál L. Collins, Gerard Hughes

A Portfolio Approach to Assessing an Auto-Enrolment Pension Scheme for Ireland
Liam A. Gallagher, Fionnuala Ryan

Irish Economic Association 2018 Conference

Irish Economic Association Annual Conference 2018

https://iea2018.exordo.com

http://www.iea.ie/

The 32nd Annual Irish Economic Association Conference will be held at the Central Bank of Ireland, New Wapping Street, North Wall Quay, Dublin 1 on Thursday May 10th and Friday May 11th, 2018. Gerard O’Reilly (Central Bank of Ireland) is the local organiser (gerard.oreilly@centralbank.ie).

The ESR guest lecture will be given by Professor Wendy Carlin (University College London and the CORE project) and the Edgeworth Lecture by Professor Olivier Blanchard (MIT and PIIE).

The Association invites submissions of papers to be considered for the conference programme. Papers may be on any area in Economics, Finance and Econometrics.

The deadline for submitted articles is the 11thof February 2018 and submissions can be made through this site.

Honest thoughts on educational inequality in Ireland

In discussing the sources of variation in academic achievement across students, there is a yawning chasm between the contemporary research literature (particularly in the emerging field of geno-economics) and the mainstream media. The mainstream media sticks religiously to the traditional blank slate theory, claiming that variation in student achievement is caused entirely by differing home and school environments. Tuesday’s Education Supplement of the Irish Times is a classic example. The main headline of the supplement is “Privately-educated elite have greater access to education” and the first paragraph reads as follows:

“Young people from disadvantaged backgrounds are denied the same opportunities as their wealthier peers, while parents with money can afford a better education for their children despite Ireland’s so-called free education system, an analysis of the 2017 Irish Times feeder school list shows.”

The article repeatedly relies on the assumption that children of wealthier parents in Ireland perform better in school for only one reason, their parents purchase better educational outcomes through fee-paying schools, tutors, and grind courses. The current scientific literature has an entirely different flavour. A recent paper by Plomin, et al., entitled “The high heritability of educational achievement reflects many genetically influenced traits, not just intelligence,” is typical. Synopsizing their findings, they state:

“Differences among children in educational achievement are highly heritable from the early school years until the end of compulsory education at age 16, when UK students are assessed nationwide with standard achievement tests [General Certificate of Secondary Education (GCSE)]. Genetic research has shown that intelligence makes a major contribution to the heritability of educational achievement. However, we
show that other broad domains of behavior such as personality and psychopathology also account for genetic influence on GCSE scores beyond that predicted by intelligence. Together with intelligence, these domains account for 75% of the heritability of GCSE scores. These results underline the importance of genetics in educational achievement and its correlates.”

To be fair to the Irish Times, an inside piece by Brian Mooney in the Supplement brings a gentle hint of realism into the blank-slate-inspired tirade of the Supplement’s lead article. Mooney hints that there might possibly be other factors explaining why households with two graduate parents grab the university places rightfully going to other households.

“For schools where both parents of many students were graduates, and where they have been supported throughout their education, getting a college place is no great reflection on the success of their school. Alternatively, we are keenly aware that for schools in disadvantaged communities, securing third-level progression for even a small proportion of students is a reflection of highly motivated teachers, and is a fantastic achievement.”

Brian Mooney does not state it explicitly, but scientists have shown definitively that the most powerful “support” that two-graduate-parent households gift to their children is their two tightly packed strands of DNA, which split and recombine, creating a new human infant in the most complex and beautiful physical process in the known universe. This new human infant is not a blank slate; he/she inherits a block-random collection of genomic traits from the maternal and paternal genomes. That genetic process, not fee-paying schools or tutor expenses, is a major source of inequality in educational outcomes in Ireland.

NB: In response to thoughtful comments from colleagues, I changed “the main source” to “a major source” in the last sentence above. That is perhaps more accurate, although it does mess with the rhythm of the final sentence. This edit was made after comments below.

Brexit and Ireland – North and South

The US journal, World Politics Review, carried a one-page interview with me last week, focusing initially on why the border is such a sensitive issue, but broadening out to cover some less obvious angles.

As the interview is behind a firewall, here’s a pre-publication draft:

WPR: The Irish border issue, specifically the prospect of a hard customs and immigration border going up between Northern Ireland and the Republic of Ireland, looks increasingly like the biggest snag in Brexit talks so far. What solutions or proposals are the different sides—in Belfast, Dublin, London and Brussels—offering?

Frank Barry: The substantive issue here is rarely spelt out explicitly. It is, as political scientists in Belfast have informed me, that if uniformed customs or immigration officers are placed on the Northern side of the border, they will have to be protected by armed police, who will in turn require the protection of the British army. This is because the border areas are the stronghold of dissident republican factions that have consistently rejected the peace agreement of the 1990s that achieved a high degree of consensus across these islands. Stationing troops in the border areas will inevitably lead to clashes, which raises the specter of a return to conflict in Northern Ireland.

The economic problems associated with Brexit are also substantial. Agribusiness, which is of major significance to both the Northern and Southern Irish economies, is the sector likely to suffer most damage from Brexit. Supply chains are highly integrated across the border, so Brexit of any form will be hugely disruptive.  Businesses on both sides of the border have been restructuring vigorously in advance of Brexit, but restructuring is costly and there are some problems that cannot be surmounted by cross-border tariff-jumping investments.

The Irish government and the European Union have advocated what essentially amounts to moving the international frontier into the Irish Sea between Britain and the island of Ireland. This proposal is anathema to both Northern unionists and the British Conservative party as it affects the constitutional integrity of the United Kingdom. The matter is further complicated by the fact that the Conservative government in the United Kingdom is dependent on the parliamentary support of Northern unionist parliamentarians for retaining its majority—giving it strong reason not to upset this part of its coalition. The British side has suggested that the problem can be resolved by technology to monitor the cross-border flow of goods. At least some customs officers and random checks would continue to be required however, and it is difficult to see how Britain can regain control over immigration without a heavy presence of immigration officials. I can see no solution to the danger of a return to civil strife other than the one being advocated by the Irish government and the EU. The constitutional issue lay at the heart of the Northern conflict however, and unionists are prepared to risk a lot rather than see their constitutional position within the United Kingdom jeopardised.

WPR: How likely is a “hard Brexit” as a result of these negotiating hangups?

Barry: Either the British deny the unionist community in Northern Ireland a veto or the EU and the Irish government accept a land border on the island of Ireland. If this circle cannot be squared, the UK will exit the EU without a deal. This is the ‘hardest’ of the ‘hard Brexit’ possibilities. A hard Brexit typically entails defaulting to World Trade Organisation rules, involving a very significant deterioration in the  trade relationship between the UK and the EU. But the bad blood engendered if the UK would to leave the EU without a deal being struck would spill over into other areas. Nor is Northern Ireland the only stumbling block in the negotiations of course.

WPR: Does Brexit pose a bigger economic threat or political threat to Ireland and Northern Ireland, given the terms of the Good Friday peace agreement?

Barry: The political threat is the one that frightens the Irish side the most, because of the danger of a return to civil strife on the island. The economic threat is substantial, particularly for, though not confined to, agribusiness. In the past, one might have hoped for EU structural funding to offset some of the damage to businesses and the economy. The UK however is a major contributor to the EU budget, and competition between remaining EU countries over the reduced budget will be intensified. Irelandwhich is by now one of the richer EU member stateswill face an uphill battle in accessing adequate compensation to alleviate the damage.

A further problem is that up to two-thirds of Irish exporters use Britain as a bridge to their continental European markets. For users of this route, Brexit will entail higher transport costs and significant time delays. Two new sets of customs frontiers will have to be crossed, as goods enter the U.K. and then re-enter the EU.

On the economic front, there are some offsetting benefits, though these pale in comparison to the costs. Britain will become less attractive to firms from the U.S. and other non-EU countries selling into the EU market, and Ireland will attract a share of the foreign investment diverted away from the U.K. British firms, too, are likely to establish in Ireland to retain free access to the EU market. Paradoxically, the harder the Brexit the stronger this effect will be. Loss of access to the Single European Market will be particularly significant for financial services firms. A large number of London-based firms are currently exploring the option of establishing operations in Dublin as a way to retain market access, though Frankfurt, Luxembourg and other locations are also competing vigorously for this business.

To the extent that Ireland is successful in attracting a share of financial services firms, however, another dilemma arises. The financial services sector in Ireland is almost entirely Dublin-based, while agribusiness is largely based outside Dublin. Regional disparities are thought to have played a role in the Brexit vote, and in the election of Donald Trump to the U.S. presidency. A widening of regional disparities could lead to a similar anti-globalization backlash in Ireland.

Brexit has not, so far, resulted in any significant weakening of Ireland’s commitment to full EU membership. But the U.K. has played a strong role in resisting the centralizing instincts of some powerful EU member states. An EU minus the UK is likely to be more strongly committed to some form of corporation tax harmonization. Yet Ireland is highly dependent on the foreign-owned multinationals, for which it serves as an export platform. These account for over 80 percent of Irish exports and have been a major factor in the rapidity of Ireland’s recovery from the financial and eurozone crises of the late 2000s. If Ireland’s attractiveness to multinational investment was to be severely diminished, its integration into the EU economy, and its ongoing commitment to the EU, could be substantially weakened.