Transcript Ireland
IRELAND
Trouble on the horizon?
Fiscal Policy
1987 – Smaller government
less taxes
less spending
1998 - Budget surplus
1998 to 2001
Debt to GDP ratio dropped from 74.1% to 36.6
Debt reduced by 8.5 billions euros
Debt and Deficit to GDP Ratios
100.0%
Percent of GDP
80.0%
60.0%
40.0%
20.0%
0.0%
1993 1994 1995 1996 1997 1998 1999 2000 2001
-20.0%
Deficit(-)/Surplus(+)
Debt
di
a
ai
n
U
Sw K
ed
en
Fi
nl
an
d
Po
la
nd
La
tv
ia
Ire
la
nd
Cy
pr
us
Br
az
Be il
lg
ui
m
G
er
m
a
Au ny
st
ra
lia
US
A
Sp
Ita
ly
In
Ja
pa
n
Corporate Tax Rates
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Foreign Direct Investment
$35,000
Millions of US Dollars
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Monetary Policy
Controlled by the ECB
Irish economy not primary basis for ECB
actions
Interest rate in line with rest of EU
Interest rate (r)
IS-LM Model
r0=r1
LM
IS0
Y0
Y1
IS1
National Income (Y)
Savings and Investment
FDI accompanied by increases in domestic
investment
Focus on improving education in 1980’s
resulted in more efficient workforce
Housing boom detracted from technological
investment
GDP Components as a Percentage of GDP
100%
90%
Millions of Euros
80%
70%
60%
Net Exports
50%
Investment
Gov't Spending
40%
Consumption
30%
20%
10%
0%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Impending DOOM?
Actual growth
GDP
Average growth
Pro-cyclical Fiscal Policies
time
Overinvestment in housing
Trouble from EU over corporate
taxes
Recommendations
Property Tax
Revenue Neutral
Encourages Investment in Technology
Keep government spending low
Allows more flexibility during downturn
Combat EU pressure to raise Corporate tax
Assess likelihood
Use political pressure to thwart
Consider raising corporate tax to lessen rate gap and
soften shock
Questions, Answers
and Guinness