Rethinking the political economy of fiscal consolidation in two recessions in Ireland
Ireland has been taken to be an exemplary case of successful growth-promoting fiscal retrenchment, not once but twice – first, in the fiscal consolidation undertaken in the late 1980s, which was taken as one of the classic original instances of ‘expansionary fiscal contraction’, and again now, in the context of meeting the fiscal deficit targets set by the current EC-ECB-IMF loan conditions. This paper argues that many of the apparent lessons drawn from Ireland’s experience turn out to be more complex and even misplaced upon closer inspection. Ireland was never an instance of ‘expansionary fiscal contraction’ in the sense in which it now understood, in the late 1980s; and the conditions that facilitated the restoration of growth at that time are no longer possible now.Firstly, the paper shows that standard methodologies for identifying the object of interest in fiscal consolidation misses out on what is really central, which is the ongoing politics of ‘fiscal effort’. Secondly, this approach challenges conventional ideas about the primacy of spending cuts over tax increases. Thirdly, Ireland’s fiscal stabilization in the earlier period depended on devaluation, international growth, and strong social pacts. None of these conditions is present in the ‘internal devaluation’ under way since 2008. Ireland has committed to fulfilling the terms of the EU-ECB-IMF loan programme, but there are few grounds for anticipating that this will of itself result in the resumption of growth. Fiscal adjustment efforts are much more painful without the growth-promoting contextual conditions that were present in the earlier period.
|Date of creation:||08 Oct 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +353 1 7164615
Fax: +353 1 7161108
Web page: http://www.ucd.ie/geary/Email:
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Callan,Tim & Keane,Claire & Savage,Michael & Walsh,John R., 2012. "Distributional Impact of Tax, Welfare and Public Sector Pay Policies: 2009-2012," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2012(4-Winter ).
- Barry, Frank & Devereux, Michael B, 1995. "The 'Expansionary Fiscal Contraction' Hypothesis: A Neo-Keynesian Analysis," Oxford Economic Papers, Oxford University Press, vol. 47(2), pages 249-64, April.
- Kelly, Elish & McGuinness, Seamus & O'Connell, Philip J., 2008.
"Benchmarking, Social Partnership and Higher Remuneration: Wage Settling Institutions and the Public-Private Sector Wage Gap in Ireland,"
WP270, Economic and Social Research Institute (ESRI).
- Kelly, Eilish & McGuinness, Seamus & O'Connell, Philip, 2009. "Benchmarking, Social Partnership and Higher Remuneration: Wage Settling Institutions and the Public-Private Sector Wage Gap in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 40(3), pages 339–370.
- Blánaid Clarke & Niamh Hardiman, 2012. "Crisis in the Irish Banking System," Working Papers 201203, Geary Institute, University College Dublin.
- Alexander Plekhanov & Manmohan S. Kumar & Daniel Leigh, 2007. "Fiscal Adjustments; Determinants and Macroeconomic Consequences," IMF Working Papers 07/178, International Monetary Fund.
- Sebastian Dellepiane & Niamh Hardiman, 2012. "Fiscal Politics In Time: Pathways to Fiscal Consolidation, 1980-2012," Working Papers 201228, Geary Institute, University College Dublin.
- Agustín S. Bénétrix and Philip R. Lane, 2009.
"The Impact of Fiscal Shocks on the Irish Economy,"
The Institute for International Integration Studies Discussion Paper Series
- Reinhart, Carmen M. & Rogoff, Kenneth, 2010.
"Growth in a Time of Debt,"
CEPR Discussion Papers
7661, C.E.P.R. Discussion Papers.
- Sebastian Dellepiane & Niamh Hardiman & Jon Las Heras, 2013. "Building on easy money:The political economy of housing bubbles in Ireland and Spain," Working Papers 201318, Geary Institute, University College Dublin.
- Perotti, Roberto, 1998. " The Political Economy of Fiscal Consolidations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 367-94, March.
- Fabian Valencia & Luc Laeven, 2012. "Systemic Banking Crises Database: An Update," IMF Working Papers 12/163, International Monetary Fund.
- Perotti, Roberto, 1996. "Fiscal Consolidation in Europe: Composition Matters," American Economic Review, American Economic Association, vol. 86(2), pages 105-10, May.
- Vincent Hogan, 2004.
"Expansionary Fiscal Contractions? Evidence from Panel Data,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 106(4), pages 647-659, December.
- Vincent Hogan, 2003. "Expansionary Fiscal Contractions? Evidence from Panel Data," Working Papers 200303, School Of Economics, University College Dublin.
- Zsolt Darvas & Jean Pisani-Ferry & Guntram B. Wolff, 2013. "Europe's growth problem (and what to do about it)," Policy Briefs 776, Bruegel.
- Francesco Giavazzi & Marco Pagano, 1990.
"Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries,"
in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122
National Bureau of Economic Research, Inc.
- Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions be Expansionary? Tales of Two Small European Countries," NBER Working Papers 3372, National Bureau of Economic Research, Inc.
- Giavazzi, Francesco & Pagano, Marco, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," CEPR Discussion Papers 417, C.E.P.R. Discussion Papers.
- Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of two Small Euopean Countries," Working Papers 89, Dipartimento Scienze Economiche, Universita' di Bologna.
- Frank Barry, 2000. "Convergence is not Automatic: Lessons from Ireland for Central and Eastern Europe," The World Economy, Wiley Blackwell, vol. 23(10), pages 1379-1394, October.
- Alberto F. Alesina & Silvia Ardagna, 2012.
"The design of fiscal adjustments,"
NBER Working Papers
18423, National Bureau of Economic Research, Inc.
- Sebastian Dellepiane & Niamh Hardiman, 2012. "The New Politics of Austerity: Fiscal Responses to the Economic Crisis in Ireland and Spain," Working Papers 201207, Geary Institute, University College Dublin.
- Blyth, Mark, 2013. "Austerity: The History of a Dangerous Idea," OUP Catalogue, Oxford University Press, number 9780199828302, March.
- Sebastian Dellepiane & Niamh Hardiman, 2011. "Governing the Irish Economy: A Triple Crisis," Working Papers 201103, Geary Institute, University College Dublin.
- von Hagen, Jurgen & Strauch, Rolf R, 2001. " Fiscal Consolidations: Quality, Economic Conditions, and Success," Public Choice, Springer, vol. 109(3-4), pages 327-46, December.
- Reyes Illera & Carlos Mulas-Granados, 2008. "What makes fiscal consolidations last? A survival analysis of budget cuts in Europe (1960–2004)," Public Choice, Springer, vol. 134(3), pages 147-161, March.
- Emanuele Baldacci & Sanjeev Gupta & Carlos Mulas-Granados, 2010. "Restoring Debt Sustainability After Crises; Implications for the Fiscal Mix," IMF Working Papers 10/232, International Monetary Fund.
- Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
- Karl Whelan, 2011. "Ireland’s Sovereign Debt Crisis," Working Papers 201109, School Of Economics, University College Dublin.
- Alesina, Alberto Francesco & Perotti, Roberto & Tavares, Jose, 1998. "The Political Economy of Fiscal Adjustments," Scholarly Articles 12553724, Harvard University Department of Economics.
- von Hagen, Jurgen & Hughes Hallett, Andrew & Strauch, Rolf, 2002. "Budgetary Consolidation in Europe: Quality, Economic Conditions, and Persistence," Journal of the Japanese and International Economies, Elsevier, vol. 16(4), pages 512-535, December.
When requesting a correction, please mention this item's handle: RePEc:ucd:wpaper:201317. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Geary Tech)
If references are entirely missing, you can add them using this form.