IRELAND Trouble on the horizon?

Fiscal Policy 1987 – Smaller government  less taxes  less spending 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

Corporate Tax Rates

Foreign Direct Investment

Monetary Policy Controlled by the ECB Irish economy not primary basis for ECB actions Interest rate in line with rest of EU

IS-LM Model

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

Impending DOOM? Pro-cyclical Fiscal Policies 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