The Irish Economy

It is widely reported that the German parliament is debating the news that Ireland is planning to raise the top VAT rate by 2%.   Of course, all else equal, an increase in any tax rate has a negative impact.  However, it is important to appreciate that an increase in VAT that avoids an increase in labour taxes is, in relative terms, an employment-friendly policy and is also part of the mix that can engineer a “fiscal devaluation” that can partially replicate the impact of a “currency devaluation” .

A VAT increase is especially effective if it is understood to be permanent (no point in delaying consumption until the tax increase is reversed).  Even better, a widening of the VAT base can further assist in raising revenue, alleviating pressure on other parts of the tax base.

In terms of income distribution, the regressive impact of a VAT increase has to be calculated in the context of the overall package of taxes and transfers, since it is important to work out the net impact of all policy changes taken together, rather than on a “one at a time” basis.

…is here. Minister Howlin’s speaking notes are here.

Comments later, here’s a wordle of the document.

The WSJ has an article on the scramble for assets that are acceptable as collateral at the ECB.  (The Irish banks have circumvented much of this by relying on an array of government-guaranteed securities.)

Marek Belka is the Governor of the Bank of Poland and influential in the EU-wide debate – his FT op-ed is here.

Previously, he was head of the IMF’s European Department – his successor Antonio Burges is to be replaced by Reza Moghadam, as announced here.

Brian Lucey’s Irishdebate session from today is available at this link Brian ran it pretty much like an office hour fielding questions and it was a lively session with good questions. The questions asked to Brian are not visible on the screen as in the live version so some of the youtube video might be unclear but it is mostly easy to figure out what the questions were.

Description;

Professor in Finance Brian M Lucey will be discussing “Planning for a post Euro Economy” With every week that passes it is becoming unfortunately clear that under present arrangements the euro cannot continue. We have seen political dithering of the worst kind, persistently, with the resulting vacuum in terms of policy being taken up by the European Central bank. Although one can criticize the ECB for many of its activities (not least the bewildering refusal to contemplate the other side of the fence in relation to Anglo) is to its credit that has at least stepped into the breach. However of all of the European institutions it is probably the least democratic, as independent central banks have to be. Every ECB action, no matter how well-meaning, in the absence of political and therefore democratic-based approaches further undermines the democratic legitimacy of the euro. Trust in the ECB has and will continue to dwindle. In any case ECB intervention in bond markets has at best only a temporary effect, and it is ultimately up to governments at national and European level to implement policies that restore fiscal discipline. The academic research on bond yields is thus while in the short term like any asset they can be moved by speculative positions in the medium and long-term contract very well against economic fundamentals.