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Quantifying Revenue Windfalls from the Irish Housing Market

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  • Diarmaid Addison-Smyth

    (Central Bank and Financial Services Authority of Ireland)

  • Kieran McQuinn

    (Central Bank and Financial Services Authority of Ireland)

Abstract

The speed and severity of the decline in the Irish fiscal position in recent years raises a number of important issues regarding the assessment of fiscal policy within the EU. From a position of relative strength, with large surpluses and a low debt to GDP ratio, the Irish public finances have rapidly deteriorated, culminating in an Excessive Deficit Procedure being launched in early 2009. In hindsight, it is evident that tax revenues were on an unsustainable path in recent years due, in large part, to structural imbalances within the economy, mainly associated with the housing market. The excess growth in the latter culminated in large and transitory tax revenue windfalls, which ultimately proved unsustainable. These windfalls contributed to large general government and cyclically adjusted budget surpluses. This paper seeks to quantify the windfall gains associated with property taxes through modelling housing related tax receipts over the period 2002 to 2009. From this, estimates are derived as to the underlying or property adjusted fiscal position, which is found in various years, to have diverged greatly from actual outturns.

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Bibliographic Info

Article provided by Economic and Social Studies in its journal Economic and Social Review.

Volume (Year): 41 (2010)
Issue (Month): 2 ()
Pages: 201-233

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Handle: RePEc:eso:journl:v:41:y:2010:i:2:p:201-233

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References

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  1. McQuinn, Kieran & O'Reilly, Gerard, 2006. "Assessing the Role of Income and Interest Rates in Determining House Prices," Research Technical Papers 15/RT/06, Central Bank of Ireland.
  2. Lutz, Byron F., 2008. "The Connection Between House Price Appreciation and Property Tax Revenues," National Tax Journal, National Tax Association, vol. 61(3), pages 555-72, September.
  3. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  4. Byron F. Lutz, 2008. "The connection between house price appreciation and property tax revenues," Finance and Economics Discussion Series 2008-48, Board of Governors of the Federal Reserve System (U.S.).
  5. Trevor Fitzpatrick & Kieran Mcquinn, 2007. "House Prices And Mortgage Credit: Empirical Evidence For Ireland," Manchester School, University of Manchester, vol. 75(1), pages 82-103, 01.
  6. Addison-Smyth, Diarmaid & McQuinn, Kieran & O'Reilly, Gerard, 2009. "Modelling Credit in the Irish Mortgage Market," The Economic and Social Review, Economic and Social Studies, vol. 40(4), pages 371-392.
  7. Isabelle Joumard & Christophe André, 2008. "Revenue Buoyancy and its Fiscal Policy Implications," OECD Economics Department Working Papers 598, OECD Publishing.
  8. Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," CEPR Discussion Papers 1615, C.E.P.R. Discussion Papers.
  9. McQuinn, Kieran & O' Reilly, Gerard, 2007. "A Model of Cross-Country House Prices (228.91 KB PDF)," Research Technical Papers 5/RT/07, Central Bank of Ireland.
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Citations

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Cited by:
  1. Agustín S. Bénétrix & Philip R. Lane, 2012. "The Cyclical Conduct of Irish Fiscal Policy," The World Economy, Wiley Blackwell, vol. 35(10), pages 1277-1290, October.
  2. Yvonne McCarthy & Kieran McQuinn, 2011. "How Are Irish Households Coping with their Mortgage Repayments? Information from the Survey on Income and Living Conditions," The Economic and Social Review, Economic and Social Studies, vol. 42(1), pages 71-94.
  3. Philip R. Lane, 2011. "External Imbalances and Macroeconomic Policy in New Zealand," The Institute for International Integration Studies Discussion Paper Series iiisdp376, IIIS.
  4. Agustín S. Bénétrix & Philip R. Lane, 2012. "Fiscal Cyclicality and EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp403, IIIS.
  5. Bergin, Adele & Conefrey, Thomas & FitzGerald, John & Kearney, Ide, 2010. "Recovery Scenarios for Ireland: An Update," Forecasting Report, Economic and Social Research Institute (ESRI), number jacb201051, March.
  6. Philip Lane, 2010. "Some Lessons for Fiscal Policy from the Financial Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp334, IIIS.
  7. Constantin Gurdgiev & Brian M. Lucey & Ciarán Mac an Bhaird & Lorcan Roche-Kelly, 2011. "The Irish Economy: Three Strikes and You’re Out?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(1), pages 19-41, March.
  8. Philip Lane, 2010. "External Imbalances and Fiscal Policy," The Institute for International Integration Studies Discussion Paper Series iiisdp314, IIIS.

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