Behavioural Science and Policy Network Meet-Up

Details of our 4th Irish Behavioural Science and Policy network meet-up are below. Sign up for the mailing list here. Sign up for the event itself here. Registration is free.

The fourth Irish Behavioural Science and Policy Network meet-up will take place on April 25th at 6pm in Dublin city centre (venue tbc). It will end at 8pm.  Each meet-up is structured around a collection of short talks, where each speaker describes briefly an idea they are working on (or thinking about), followed by questions, potential suggestions for collaboration between members, and a group discussion on the collection of talks.

This session will focus on applications of behavioural science to public policy. including health applications and the role of design principles. Speakers will include Dan Hayden from UCDClare Delargy from the BITEoin O’Malley from DCU and David Hevey from TCD.

All those interested are welcome to attend, so please do share this event information with anyone who you think would like to come along.

We look forward to seeing you on the 25th of April.

World university rankings

This is one way to try to boost your position in the world university rankings.

Another would be to shift admittedly very scarce resources from administrative to frontline staff, so as to keep class sizes under control; remember that the university’s core function was always to provide an excellent undergraduate education, and value those members of staff whose dedication made that possible; and value the outputs of research, instead of the financial inputs into it.

The ECB’s Inflation Target

The Eurozone HICP inflation index for February was at roughly the same level it had reached in the early months of 2012. That is to say the inflation rate has been essentially zero for four years.
The cumulative impact of this undershoot on the real burden of debt is getting to be very serious. The ECB’s own forecasts are for just 0.1% in 2016, 1.3% in 2017 and 1.6% in 2018, so they expect the undershooting to continue. By this time next year the price level will have been flat for five years. If GDP deflators had risen at 2% per annum for those five years various indebted countries would have knocked ten points off debt/GDP ratios, other things equal. So the ECB policy failure has consequences and has penalised the countries most heavily indebted.
Unlike the situation in the UK, the USA and other inflation-targeting countries there is not even a clear figure. The phrase (intoned at every Draghi press conference) is ‘below, but close to, 2%’. Why so coy? What does ‘close to’ actually mean? Will the 1.6% predicted for 2018 be deemed to have done the job?
The treaty talks only about price stability so the choice of target is entirely a matter for the ECB Governing Council. The tortured phraseology looks like a compromise – the sound money people getting the ‘below’ part and the rest getting the ‘but close to’. The 2% number had to get a mention, since various central banks had settled on an explicit 2% figure. It would hardly have been feasible to publicly declare a lower target number like 1% and would have had market repercussions. Whichever scribe came up with the form of words has hopefully been promoted.
Suppose the measures announced last week have their desired impact and Eurozone inflation reaches somewhere deemed ‘close to’ 2% in 2018. By that stage the heavily-indebted countries will have been short-changed substantially on real debt burdens. The remedy would be to raise the target, say to 4%, for five or six years in order to compensate, as Olivier Blanchard proposed when he was at the IMF. The indebted countries would be remiss not to push for this when the time comes, assuming the show is still on the road.

Scrapping Irish Water?

Reports abound that Irish Water is to die. Fianna Fáil has made Irish Water’s scrapping a pre-condition of any coalition, and sources around Fine Gael are fairly happy to see this toxic object redeveloped, at least in some way. The strategic interaction of the party blocs, the media, and the electorate has cast paying water charges into a mire of uncertainty, forcing the Taoiseach to plead with people to continue to pay their water bills.

All of a sudden, even that slight majority of people who were paying water charges have good reason to doubt whether paying for water services is worth it anymore. Surely if Irish Water is redesigned in some way, water charges of some type will have to keep being made to households and businesses?

There is no point debating how Irish Water should have been set up, or could have been set up. The fact is that it exists today, doing its work at some level of efficiency, what level that might be is anyone’s guess.

What is worth debating is what the likely effects of turning a long run infrastructural investment vehicle, however poorly designed and implemented, into a short term political football, might be.

Foundation for Fiscal Studies – Research Prize 2016

The Foundation for Fiscal Studies awards an annual prize to recognise outstanding contributors in the area of Irish fiscal policy. A prize of €1,000 will be awarded, together with a commemorative Gold Medal.

Nominations are invited for work completed during the period 2014 and 2015 which has added to the public knowledge or understanding in areas such as taxation, public expenditure and other related fiscal policy topics. These contributions may include research papers, reports, books, book chapters, blog posts, opinion pieces or any other method which has publically provided new and relevant insights into these topics in Ireland.

Further details in relation to eligibility are contained in the attached call for nomination.

Last year’s prize was awarded in September 2015 to Rónán Hickey and Diarmaid Smyth for their paper – ‘The Financial Crisis in Ireland and Government Revenues‘ – which is available to read on the FFS website by following the link.

The authors presented their paper and received their prize from Minister Harris at an FFS event in the Mansion House – details here.

Interested parties should note that the closing date for nominations is 30th April 2016 and that nominations of worthy work are encouraged from any party including the authors themselves. Nominations for the Prize should be made by email to info@fiscal.ie.

 

Vestager replies to Lew

The European Commission have responded to the recent interventions by the US Treasury into the tax related state-aid investigations with this letter from Margrethe Vestager to Jack Lew.

On one of the issues raised by the US Treasury the response is as would be expected:

I also hope we agree that the taxation systems of EU Member States entitle them to tax the profits generated by companies operating in their territory, including US companies.  The Commission has the duty to ensure that these rules are applied in a non-discriminatory manner by excluding preferential treatment in any form that constitutes incompatible State aid.  This does not put into question the US taxation system or go against double taxation treaties concluded by EU Member States.

So we await whether DG Comp are going to conclude that the estimated $120 billion of profits earned by Apple Sales International between 2004 and 2013 were generated in Ireland and so should be taxable in Ireland as opposed to only those profits earned by ASI’s branch in Ireland.  The Commission could also conclude that the allocation of profit to ASI’s Irish branch was “wrong” but if that was to be the case then this ongoing exchange of letters would have been wholly disproportionate.

The Commission are also investigating Apple Operations Europe (AOE).  AOE also has an Irish branch which undertakes manufacturing of a specialised range of computers.  However, ASI is the global hoover of Apple’s profits – it contracts with third-party manufacturers in China (with all agreements signed in the US) and sells on the products to Apple distributors at an “arm’s length price”.  The difference between the fee paid to the manufacturer and the price charged to the distributor is considerable.  Hence, the estimated $120 billion of profits earned by ASI between 2004 and 2013, with 90 per cent of that occurring in the final four years of the period.

ASI is a subsidiary of AOE so it is possible that the Commission could rule that the profits are taxable in Ireland when they are distributed as a dividend by ASI to AOE.  This could potentially bring our 25 per cent Corporation Tax rate into the equation.  But that seems very unlikely.  The focus will probably be on the trading profits earned by ASI, though if it ends up being a dispute over the profit allocated to ASI’s Irish branch we really will be left wondering what all the excitement was about.

How long more will they keep us waiting?  And if a decision is published by DG Comp is there a timeframe within which an appeal to the CJEU must be made?

Save the Eurozone – Scrap the €500 Note

The Eurozone, Japan, Switzerland and some Scandinavian countries now have negative official interest rates, so they charge commercial banks for holding excess funds at the central bank. The idea is to incentivise them to lend more money instead into the real economy. This has not really been happening: business firms are too nervous to borrow and do not feel the need for extra productive capacity. The European Central Bank is considering whether its charge on bank credit balances should be increased to power up the incentive, that is, whether the negative rate should be even more negative. There are numerous snags attaching to this latest venture into unorthodox policy.
The first is that commercial banks, whose balance sheets remain fragile, find it very hard to make money when interest rates get this low. Healthy bank profits are hardly a priority for most people but loss-making banks are not a very attractive prospect either. The other problem is that negative official interest rates mean that monetary policy is already reaching its limits. Economists have long written about the ‘zero lower bound’ for interest rates: nobody will hold deposits at a cost and will resort instead to cash. Interest rates on demandable deposits are already zero in Ireland (or 0.01% to be more accurate) and some Swiss banks are now levying a charge. If you deposit €1000 they will pay you back only €999, or €995, a year from now. This is not an attractive deal and people will prefer to keep their money in banknotes.
The trouble is that most bank deposits by value are in amounts much larger than €1000. Many business corporations, nonbank financial companies and pension funds keep deposits in the multiple millions. They cannot stuff the filing cabinets with physical banknotes. But they are not captive customers of the commercial banks either. If they can find somebody trustworthy to hold banknotes on their behalf it might be a better deal even if there is a storage cost. It appears that storage costs could be cheaper than the negative interest rates now threatened, particularly given the availability of large denomination notes such as the $100 bill or, even more attractive, the €500 note in the Eurozone. You could fit a million easily into a briefcase in the form of €500 notes. The ECB’s negative rate is currently 0.3% and it may penalise depositors even further at its next monetary policy meeting on March 10th next. Wholesale interest rates on large deposits will inevitably follow the ECB rate. There have been calculations that storing millions in the form of €500 notes would cost less than the likely wholesale penalty if the ECB goes even more negative.
So somebody needs to come up with a cunning wheeze to escape this latest policy cul-de-sac and there are active proposals to, you guessed it, abolish the €500 note. It would not be acceptable to explain that this was necessary because of another policy misadventure, so the spin coming out of both Brussels and Frankfurt is that the €500 note is mainly used by criminals, and since nobody likes criminals, it has got to go. The coincidence of this discovery with the dilemma over negative interest rates is just that, a coincidence.
The logic is impeccable at first glance. Criminals use €500 notes, ban them and this will inconvenience the criminals. Like it did with machine guns. Ban them and, oops, the only ones with machine guns are criminals. Various international law enforcement agencies, including Interpol and Europol, have confirmed that the €500 note is popular with money launderers and drug dealers and there is no reason to doubt them. But there are many billions in €500 notes out there already and the ECB can hardly cancel them. They will continue to circulate in the shadows. There are lots of non-criminal users of large notes, not just horse dealers and bookmakers in Ireland but also wholesale traders in countries outside the Eurozone with dodgy currencies and unreliable money transmission systems. As much as half of all €500 notes is believed to circulate outside the Eurozone, especially in the Balkans, Turkey and Russia. Its predecessor was the German 1000 Deutschmark note which circulated widely in these places and the ECB version was consciously introduced so as to facilitate existing users.
As for the mafia, there have been prosecutions of numerous banks for facilitating their illicit transfers and it is hard to believe that the withdrawal of the largest ECB note will inspire their professional retirement. Readers will recall the spin justifying depositor haircuts in Cyprus including the assertion that the money belonged to the mafia, Russian chapter. They survived.
The proposal to scrap the €500 note is further evidence of the absence of a serious Eurozone macroeconomic policy.

US intervention on state-aid cases ratchets up

The US Treasury were obviously unimpressed with the response to Asst. Treasury Secretary Robert Stack’s recent visit to Brussels with Competition Commissioner Margrethe Vestager responding that “it is the same argument as we have heard before”.

The US clearly feels it is an argument worth making and now Treasury Secretary Jacob Lew has written a letter to Commission President Jean-Claude Juncker.  It is largely a repetition of the arguments heard before but there are some interesting elements.

On the State Aid case against Ireland in relation to Apple, Lew is pretty clear:

Continue reading “US intervention on state-aid cases ratchets up”

Broad tax bases are desirable

I notice that there is no election thread, which makes sense given that we were probably all fed up with the campaign before it even began. And I’ve nothing original to say on the subject either. But there probably should be an election thread, and if there is to be one, someone has to kick it off by saying something. So, in that spirit: do we all agree that (a) the Irish economy is now recovering, and doesn’t need further stimulus right now; (b) that the Irish economy has proved itself over previous decades to be unusually volatile; (c) that the international outlook right now suggests that there are risks on the horizon; (d) that the Eurozone is a very dangerous place to be anyway, if you are a small country; (e) that broad tax bases are preferable to narrow tax bases; and (f) that given all of the above, arguing for the abolition of the USC or water charges (water charges, as opposed to Irish Water) is grossly irresponsible, and should suffice to disqualify a party from being taken seriously as a “safe pair of hands”?

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

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

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

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

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

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

 

Upsetting the applecart

The Apple story rumbles on meaning that almost anyone saying the X multiplied by .125 equals Y can make front-page news (provided Y is a big number of course).  In very rough terms there are three possible outcomes to the investigation:

  1. No adverse finding is made,
  2. The 1991 advance pricing agreement, as revised in 2007, is found to be ‘wrong’ and different parameters are used to allocate profit to Apple’s operations in Ireland, or
  3. Some portion, or all, of Apple’s profits (outside of the Americas) are deemed to be taxable in Ireland.

Continue reading “Upsetting the applecart”

IMF Post-Program Monitoring Report on Ireland notes the unusual risk profile of the Irish banking sector

The IMF has released its latest post-program monitoring report for Ireland. What is notable in the report is how it highlights the still very-high-risk profile of the Irish banking sector, and the policy quandary regarding encouraging housing construction without endangering another Irish banking sector crash over the medium term. Despite a strong, three-year-long domestic economic expansion, Irish mortgage loans remain an unusually risky asset class.

Continue reading “IMF Post-Program Monitoring Report on Ireland notes the unusual risk profile of the Irish banking sector”

Tom Kettle, 1880 – 1916

In 1909 Tom Kettle was appointed the first Professor of the National Economics of Ireland at University College, Dublin.
He was in Belgium running arms for the National Volunteers when the war broke out in 1914. What he perceived as the barbaric Prussian assault on European civilization prompted him to apply for a commission with the Royal Dublin Fusiliers, which he was awarded in 1916.
He was killed in action at Ginchy (Picardy) during the Battle of the Somme on 9th September 1916.
In the spring of 2006 the late Gerry Barry, the RTÉ broadcaster, organized a public meeting (in the former House of Lords chamber at College Green) to mark the 90th anniversary of Kettle’s death. He asked me to contribute a piece on Kettle’s work as an economist.
Ten years on, and a century after Kettle’s death, I thought readers might be interested in the brief essay I wrote for the occasion.

More details of his life are available in the excellent Wikipedia article on him:https://en.wikipedia.org/wiki/Tom_Kettle.

Conference on macroprudential regulation

A conference with the theme Macroprudential regulation: policy dynamics and limitations will be held on Friday January 29th, 2016, at the Institute of Banking, North Wall Quay, Dublin, organized by the Financial Mathematics and Computation Cluster, the Department of Economics, Finance & Accounting at Maynooth University and the UCD School of Business at University College Dublin. The conference schedule appears below.

There are no attendance fees for the conference, but attendees need to register. We are grateful to the Science Foundation of Ireland and the Irish Institute of Banking for their generous support of this conference. The Financial Mathematics Computation Cluster is a collaboration between University College Dublin, Maynooth University, Dublin City University and industry partners, with support from the Science Foundation of Ireland.

10:00 – 10:30  Registration and poster session

10:30 – 10:35  Welcome and introduction

Theme 1: Measuring Macroprudential Policy Needs and Policy Effectiveness

10:35 – 10:55  Marcelo Fernandes (Queen Mary University), “Response to supervisory stress tests”

10:55 – 11:15  John Fell (European Central Bank), “Credit flow restrictions: Implementation and coordination issues”

11:15 – 11:25  Coffee break

11:25– 11:45  Scott Frame (US Federal Reserve), “The failure of supervisory stress testing: Fannie Mae, Freddie Mac, and OFHEO”

11:45 – 12:05  Eugenio Cerruti (International Monetary Fund), “The Use and effectiveness of macroprudential policies: New evidence”

12:05 – 12:25  Panel discussion

12:25 – 13:25  Buffet lunch and poster session

Theme 2: Housing Markets and Macroprudential Policy

13:25 – 13:45  Gabriel Brunneau (Bank of Canada), “Housing market dynamics and macroprudential policy”

13:45 – 14:05  Kieran McQuinn (Economic and Social Research Institute), “Macroprudential policy in a recovering market: Too much too soon”

14:05 – 14:15  Coffee break

14:15 – 14:35  Christoph Basten (Swiss Financial Supervisory Authority), “Countercyclical capital buffers in Switzerland”

14:35 – 14:55  Angus Foulis (Bank of England), “The role of credit in the US housing boom: Insights from tiered housing data”

14:55 – 15:15  Panel discussion

15:15 – 15:20  Closing remarks

Lecturer, Below the Bar, Economics (Natural Resource Economics and Policy)

The J.E. Cairnes School of Business and Economics at NUI Galway wishes to appoint a person to the post of Lecturer Below the Bar, Economics (Natural Resource Economics and Policy), Contract Type B. The position will commence on 1 September 2016. Candidates should normally hold a PhD in economics or equivalent and demonstrate a record of publishing in peer reviewed journals, the capacity to secure research funding, and the ability to teach and supervise at undergraduate and postgraduate levels. Whilst not limited to these areas, we particularly encourage applications from those with interests in agriculture and agri-food, environmental economics, marine economics, and sustainable energy and development.

The J.E. Cairnes School is home to the Whitaker Institute. The successful candidate will contribute to already successful research clusters within the Whitaker Institute, notably the Socioeconomic Marine Research Unit (SEMRU) and the Centre for Environment, Sustainability and Development (CEDS). Through these clusters, the School already has strong links with Teagasc, the Marine Institute, and the Department of Agriculture, Food and the Marine. The successful candidate will be expected to strengthen these relationships and enhance the School’s existing comparative advantage in the area of economic evaluation. The School is already a leader in the economics of evaluation in both the natural resource/environment and health/ageing areas.

Closing date for receipt of applications is 17:00 (GMT) on Thursday, 21st January 2016.  It will not be possible to consider applications received after the closing date.

For more information and Application Form please see website:  http://www.nuigalway.ie/about-us/jobs/ Applications should be submitted online.

Latest edition of Economic and Social Review now available online

Here is the list of contents of the latest edition of the Economic and Social Review:

Vol 46, No 4, Winter (2015)

Table of Contents

Articles

The Demand for League of Ireland Football
Barry Reilly 485–509

The Relative Age Effect and Under-21 Irish Association Football: A
Natural Experiment and Policy Recommendations, David Butler, Robert
Butler  511–519

Housing Bubbles and Monetary Policy: A Reassessment
Graeme O’Meara 521–565

To Weight or Not To Weight? A Statistical Analysis of How Weights
Affect the Reliability of the Quarterly National Household Survey for
Immigration Research in Ireland
Nancy Duong Nguyen, Patrick Murphy 567–603

Book Review

EOIN O’LEARY, Irish Economic Development: High-Performing EU State or
Serial Underachiever. London: Routledge; 232 pages; March 2015
Frank Barry  605-611.

All papers can be accessed at www.esr.ie

Critical Quarterly columns

I’m writing an economics column in Critical Quarterly, a humanities journal, which is a bit of fun. They are supposedly free to view for 12 months after publication. I already posted a link to the first, on the European democratic deficit, but neglected to link to the second, on migration. The third, on secular stagnation, is available here.