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