IRELANDIRELAND
Trouble on the horizon?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
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
1993 1994 1995 1996 1997 1998 1999 2000 2001
Per
cen
t o
f G
DP
Deficit(-)/Surplus(+) Debt
Corporate Tax Rates
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Foreign Direct Investment
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Mill
ion
s o
f U
S D
olla
rs
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
LM
IS0 IS1
Inte
rest
rat
e (r
)
r0=r1
Y0 Y1 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
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Mill
ion
s o
f E
uro
s
Net Exports
Investment
Gov't Spending
Consumption
Impending DOOM?
Pro-cyclical Fiscal Policies
Overinvestment in housing
Trouble from EU over corporate taxes
Actual growth
Average growth GDP
time
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
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