Ireland: Selected Issues

This Selected Issues paper proposes to strengthen Ireland’s national fiscal framework by establishing a prudent medium-term debt anchor and an expenditure rule to guide the annual budget process. It first establishes a prudent debt anchor for Ireland by calibrating corporate income tax shocks and simulating possible debt trajectories. Second, it proposes an operational rule based on multi-year expenditure ceilings. The ceilings are calibrated such as to stabilize debt at the anchor level while accounting for the economy’s cyclical positions. The paper abstracts from discretionary revenue measures in its analysis, and defines expenditure limits as net of such measures, consistent with the definition of the previous government’s net spending rule. Regular reviews should be conducted to ensure that fiscal rules remain well-calibrated to macroeconomic and fiscal conditions. Adjustments may be necessary as macro-fiscal conditions and structures evolve. Defining the ceilings in terms of growth rates has the benefits of ease of communications and continuity, and with full compliance the two approaches are equivalent.