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Supplying solutions in demanding times: the effects of various fiscal measures

Supplying solutions in demanding times: the effects of various fiscal measures. Institute of Bankers, Dublin, 31st January 2014. Rory O’Farrell NERI ( Nevin Economic Research Institute) Dublin info@NERInstitute.net. How has the debate changed?. French army 1914-1940

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Supplying solutions in demanding times: the effects of various fiscal measures

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  1. Supplying solutions in demanding times: the effects of various fiscal measures Institute of Bankers, Dublin, 31st January 2014 Rory O’Farrell NERI (NevinEconomic Research Institute) Dublin info@NERInstitute.net

  2. How has the debate changed? • French army 1914-1940 • Schooled in old tactics • Technology had changed • Attack until 1917 • Defend until 1940 • Again technology had changed • Intelligent people can get it wrong, for years.

  3. Economics, 1929 to 1970s • Up to 1929 problems were largely to do with supply • E.g. Theodore Roosevelt taking on the ‘Trusts’ • 1929 Wall Street Crash, deflationary spiral • New Deal not until 1933 • Demand management • 1970s supply side shock (oil) • France/Denmark vs UK/US

  4. Recent debate • Economists (again) generally view everything as a problem of supply • Expansionary Fiscal Contraction

  5. Recent debate • “International experience shows clearly that cuts in spending are more effective at fixing deficits and are better for growth and jobs than tax increases.”

  6. Some research on tax • Coenen et. Al (2012) – a review of different models

  7. Some research on tax • ECB– recent debate triggered by IMF

  8. Some research on tax • ECB– recent debate triggered by IMF

  9. Research applicable to Ireland • A lot on spending (e.g. Benetrix and Lane) • Only look at spending • Corsetti, Meier, and Müller (2012) • Beetsma and Giuliodori (2011) • Ilzetzki, Mendoza, and Végh (2013) • ESRI research on spending and taxes (2013)

  10. Research on Ireland • Bénétrix and Lane (2009) • Galstyanand Lane (2009) • Pereira and Pinho (2011).

  11. Effect of a €1bn consolidation

  12. Conclusion • The Irish economic problem is fundamentally a problem of demand, not of supply. • Up to now the focus has been on supply side solutions, which are less effective given the current circumstances. • Cuts Vs Taxes? – It’s a matter of what sort of society we want, not economic efficiency

  13. www.NERInstitute.net

  14. References • Bénétrix, Agustin and Philip R. Lane. 2009. "The Impact of Fiscal Shocks on the Irish Economy." The Economic and Social Review, 40(4), 407-34. • Bénétrix, Agustín and Philip Lane. 2010. "Fiscal Shocks and the Sectoral Composition of Output." Open Economies Review, 21(3), 335-50. • Bergin, Adele; Thomas Conefrey; John FitzGerald and Ide Kearney. 2010. "The Behaviour of the Irish Economy: Insights from the Hermes Macro-Economic Model." ESRI Working Paper, No. 287. • Coenen, Günter; Christopher J. Erceg; Charles Freedman; DavideFurceri; Michael Kumhof; René Lalonde; Douglas Laxton; JesperLindé; Annabelle Mourougane; Dirk Muir, et al. 2012. "Effects of Fiscal Stimulus in Structural Models." American Economic Journal: Macroeconomics, 4(1), 22-68. • European Central Bank. 2012. "December Monthly Bulletin," Monthly Bulletin. European Central Bank

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