Prospects for Job Creation | July 2012

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Briefing Paper

Prospects for Job Creation1 TASC Briefing, July 2012

Summary There is a complex relationship between economic

growth, the public finances and levels of

employment and unemployment in any economy.

Ireland is facing a crisis on all fronts:

unemployment tripled in less than three years; the

gap between tax revenue and annual expenditure

remains large (underlying deficit of 9.4 per cent in

2011) and requires urgent action; due to this

deficit and additional costs, especially the bank

bailouts, Ireland’s national debt is potentially

unsustainable (peaking at 119 per cent of GDP in

2013; NTMA); and a series of unbalanced

contractionary budgets have dampened growth

and risk plunging Ireland further into a negative

spiral of a shrinking economy, shrinking

government revenue and increasing

unemployment.

There is a weight of evidence backing the claims

that a growth strategy is needed for Ireland’s

recovery. This briefing paper provides a discursive

review of targets for investment and sources of

finance. But, crucially, it also points to the

empirical evidence that State-led productive

investment can lead to sufficient growth to break

the current downward spiral even in a small open

economy like Ireland. This is a not a ‘silver bullet’

solution, but requires a new balance between

taxation, spending cuts and investment, informed

by the urgent social priority of decreasing

unemployment.

1. Jobs Crisis Figure 1 illustrates the tripling of unemployment

since the outset of the crisis. For example, the

unemployment rate has risen from 4.5 per cent in

May 2007 to 14.7 per cent in May 20122.

Figure 1. Unemployment (%) 2001-20113

Increased unemployment has major implications,

with the risk that another generation in Ireland will

be scarred by poverty, involuntary emigration and

potentially a breakdown in social cohesion.

Social Cohesion

One of the risks of higher unemployment,

especially ‘long-term’ unemployment (i.e. more

than 12 months) is that people can become

deskilled or lose their attachment to the idea of

regular employment. It can also result in increased

problems associated with mental health, addiction

and criminal behaviour.

Putting this into the context of social change in

Ireland, there are nearly a million children born

since 1997 (22 per cent of the population)4, for

whom four or five per cent unemployment was the

norm that shaped their social and economic

environment to date. This is likely to have given

them profoundly different expectations compared

to the life experiences of many people in previous

generations. It remains to be seen what effects the

shock of deprivation has on this generation.

Wasted Potential

While it is obvious that unemployment is a waste

of someone’s potential, it should be noted that

from a formal economic perspective, the

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unemployment or underemployment of a large

number of people’s skills and capabilities

represents a significant part of the economy

operating at less than its ‘economic potential’.

Structural Unemployment

Another one of the risks of the growth in

unemployment is that some of that

unemployment will become ‘structural’; that is, an

inevitable result of the way in which the economy

is currently organised. For example, the skills of

those who are unemployed may be badly matched

with areas of growth potential in the economy and

job opportunities.

In modern, dynamic economies there is a need for

constant retraining and up-skilling to adjust to an

ever-evolving economy, where different sectors

(and different skills) will rise and fall in

prominence.

Figure 2. Unemployment (%) 1983-20115

As figure 2 shows, as far as recent decades are

concerned, unemployment at a level significantly

higher than the 4 to 5 per cent during the boom is

the norm in Ireland, with all that that implies in

social and economic terms. The average level of

unemployment in Ireland, from 1983 to 2011, was

10.7 per cent. If the unsustainable component of

employment generated during the property boom

could be filtered out, the average unemployment

rate over this period would be significantly higher.

There is a real risk, once the one-off unsustainable

effects of the property boom are stripped away,

that the configuration of the Irish economy will

once again tend towards a much higher rate of

unemployment than was experienced in the

previous decade.

In other words, whereas part of the currently high

level of unemployment is due to the temporary

low position of the Irish economy in the business

cycle, a significant proportion of unemployment

will not decrease even when the economy picks

up. Based on the current population and size of

the labour force, every percentage point of

unemployment represents over 21,000 people.

The current peak level of unemployment of 14.8

per cent (CSO, June 2012) represents 309,000

people.

Factors affecting Job Growth

Investment is not the only factor that can lead to

decreased unemployment. Labour costs, labour

mobility, distribution of income, work-sharing

schemes (like in Germany), education, training and

a range of other factors including external shocks

can all affect the unemployment rate even in the

context of low growth. A full exploration of these

factors is beyond the scope of this paper but must

be included in any comprehensive strategy to

reduce unemployment. In this briefing, the specific

focus is on exploring the feasibility of State-led

investment to lower unemployment.

It is a legitimate question to ask whether any of

the fundamentals of the Irish economy have

changed during the boom period, to give any

confidence that it may be possible to return to a

lower level of unemployment in Ireland.

Certain key factors such as infrastructure and

education have greatly improved over time.

Women’s participation in the labour force has also

increased. As a result of these and other variables,

overall employment is a relatively higher

percentage of the labour force than was the case

before the property boom. Eurostat data shows

that the unemployment rate of 14.4 per cent in

2011 was matched by a 59.2 per cent employment

rate (a ratio of 1.0 to 4.1), whereas in 1992, a 15.4

per cent unemployment rate was matched by 51.2

per cent employment (a ratio of 1.0 to 3.3). In

other words, a larger proportion of the labour

force (8 percentage points more) was employed in

10.7% average

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2011 compared to twenty years previously, which

is indicative of real changes in the economy.

Historical data on Ireland also needs to be

examined with caution. Another major variable

affecting unemployment levels in Ireland is

migration. Up until recently this was

predominately out-migration of people born in

Ireland, however membership of the EU, Ireland’s

openness to migrant workers from Eastern Europe

during the property boom and the renewal in out-

migration following the crash all have a major

effect on the expansion and contraction of the

labour force, and consequently the proportion of

workers who are unemployed.

2. Crisis in the Public Finances It is well documented elsewhere that Ireland is

facing a massive crisis in its public finances. Tax

revenue fell by a third in the first two years of the

crisis, due to the prior ‘hollowing out’ of the tax

system through tax cuts and tax breaks, and the

over-reliance on property-related tax receipts

during the end years of the property bubble that

finally collapsed in 2008.

Ireland’s underlying deficit in 2011 was 9.4 per

cent of GDP (April 2012). The target for deficit

reduction in 2013 requires the next budget to

implement c.€3.5 billion in a combination of tax

increases and spending cuts.

In this context, the scope for the State to engage in

major investment to boost the economy is

obviously limited. However, this paper argues that

some of the options available to the State have not

been explored in full, in part due to the dominance

of an overly simple analysis of growth dynamics

and automatic stabilisers during a crisis; an

analysis that fails to see the potential benefits of a

State-led growth strategy to complement other

measures to close the deficit.

3. The Need for Economic Growth The mathematical argument in favour of economic

growth is irrefutable. Practically all cuts to public

spending will contract economic output and

likewise, all tax increases will contract the

economy. Moreover, as the economy shrinks, this

in turn decreases tax revenue, decreases

employment and increases welfare payments. A

strategy based largely on tax and cuts risks

perpetuating a negative spiral resulting in further

economic contraction and, ultimately, default on

sovereign debt.

Since the outset of the crisis, some voices have

immediately recognised the need for a growth

strategy6. It is unsurprising that following years of

economic contraction across Europe, especially in

the peripheral economies, there is now a much

stronger EU-wide call for growth, epitomized in

the policy proposals of the new French President,

François Hollande, but with advocates across the

European Union, including major German think-

tanks like the Friedrich Ebert Stiftung and the Hans

Böekler Stiftung.

Economic Output

Economic activity is measured in terms of the sum

total of the value of all goods and services

produced in a country. Measurements include

GDP, GNP and GNI and they are typically similar

values. Ireland is unusual in having a significantly

larger gross domestic product (GDP) than gross

national income (GNI) due to the relatively larger

scale of multinational corporation involvement in

the Irish economy. Due to the combination of this

with Ireland’s low corporation tax rate, it is

arguably more appropriate to examine the

sustainability of Ireland’s public debt as a

percentage of GNI rather than GDP, as is typical for

other countries. This is worrying, because Ireland’s

national debt as a percentage of GNI is well over

the threshold of what would normally be

considered sustainable; i.e. it seems inevitable that

Ireland must eventually default on this level of

debt, unless the banking debt component is

removed from the equation or significantly eased.

Recent announcements from the EU make it

appear that some deal on bank debt is plausible.

As was seen during Ireland’s property boom and

subsequent crash, some forms of growth are more

durable than others.

Durable economic growth (i.e. genuine

development based on productivity) tends to be

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linked to the factors such as: population growth;

improvements in educational attainment across

the population; improvements in infrastructure

(e.g. roads, telecommunications); improvements in

basic public services (e.g. water, waste collection);

better institutions (e.g. appropriate levels of

market regulation); and innovation leading to

increased productivity in the workplace, including

‘low tech’ as well as ‘high tech’ innovation.

Investment

A major component of economic output is capital

investment from both private and public sources.

This involves the building of infrastructure,

investment in machinery, and various other ways

in which the technological and productive capacity

of an economy is increased.

The full benefits of investment may not be realised

until years after the initial investment, but

conversely, a decrease in investment is a clear

indicator that economic output will be lower in

future.

A very worrying trend in Ireland is the

extraordinarily low level of gross fixed capital

formation by the private sector. In 2011, this was

6.5 per cent of GDP in Ireland compared to an

EU27 average of 16.1 per cent. The next lowest

was 10.9 per cent in Greece. This represents a

severe lack of investment which will impair the

growth and employment capacity of the economy

in future years. At the same time, it is clear

evidence of a gap into which State-led investment

would be more potent than if it was in competition

with private sector investment.

Economic Growth and Jobs

While it is fairly obvious that increased economic

output will lead to increased employment, four

factors should be noted. Firstly, different sectors

of the economy can be ‘jobs-rich’ or ‘jobs-poor’

depending on their balance between skill

requirements, the use of technology to replace

labour, etc. The multinational corporations in

Ireland provide a significant boost to economic

output, but they have not typically provided high

levels of employment. The employers of the vast

majority of workers in Ireland are SMEs (Small and

Medium Enterprises). Lawless et al (February

2012) found that 72 per cent of 1.1 million

employees in their dataset worked in SMEs.

A second factor is that growth can in some cases

increase employment without a proportionate

decrease in unemployment. For example, skilled

migrant workers may be better suited to fill new

job vacancies than workers resident in Ireland. This

relates to the issue of structural unemployment

and points to the need for creating job

opportunities that match existing indigenous skills

alongside programmes to retrain and reskill those

who are unemployed.

Thirdly, while an economy of any given level of

output will support the employment of a certain

number of people, this is a dynamic relationship

not a static one. Over time, an economy that is not

growing will have a decline in employment. This is

explained as being due to innovation and

technology making it possible for the same work to

be done by less people. As a result, there is a need

for a certain level of real growth in the economy to

maintain the current level of unemployment. Paul

Krugman estimates this as roughly over 2 per cent

real GDP growth. It is therefore necessary to have

an even higher level of growth to bring about a

reduction in unemployment.

A fourth factor is that not all economic growth is

equally beneficial. Ireland’s debt-fuelled property

bubble generated temporary growth and

significant employment, but the jobs were

unsustainable and the level of debt incurred is now

a major burden on the economy.

Ireland’s Debt Burden

The high level of private debt carried by

households and businesses are major factors in the

economy that are weighing against a general

upturn any time soon. These add to the already

enormous level of public debt.

Cecchetti, Mohanty and Zampolli (2011) find that

sovereign debt levels above 85 per cent of GDP,

corporate debt levels above 90 per cent of GDP,

and household debt levels above 85 of GDP are all

bad for growth. Ireland exceeds the threshold for

all three types of indebtedness. For example, Irish

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sovereign debt will peak at 119 per cent of GDP

(NTMA), and household debt is over 200 per cent

(IMF WEO 2012). Corporate debt (including the

banks) is even higher, although estimates vary

considerably.

4. The Complex Relationship between

Growth, Jobs and the Public Finances There are undoubtedly tensions between seeking

to achieve increased growth, decreased

unemployment, closure of the deficit in the

national finances and reduction of the national

debt. At the same time, a more nuanced analysis

shows that some policies are beneficial to all of

these ends. For example, Cottarelli (2012) writes:

[There is a] “complex relationship

between economic growth and fiscal policy. It is a

complex relationship because it involves various

kinds of feedbacks between the two sides of the

equation, and different effects depending on

whether we look at the short or the long run. But it

is an issue of extreme importance for policy-

makers in advanced countries. Fiscal policy has

critical implications for economic growth both in

the short and the long run. At the same time,

strong growth greatly facilitates fiscal adjustment,

both in the short and in the long run. And fiscal

adjustment is what most advanced countries need

over the coming years, as their public debt to GDP

ratio stands at an historical peak reached only

once in the last 130 years.”

Feedback

The concept of feedback is important to explain

why cuts do not equal equivalent levels of savings

in the public finances. In a simple example, if the

state pays an employee one euro less, than the

State will lose whatever proportion of that euro

would have been paid in income tax, social

insurance and potentially VAT and excise on

purchases. Moreover, if many state employees

have less money to spend, than economic activity

contracts, with losses in the private sector, which

again decrease revenue and potentially increases

demands on welfare spending.

More complex examples are possible, such as the

role of public bodies in purchasing goods and

services from the private sector. It should be clear

enough that there is a complex interaction

between the public and private sectors in the

economy, which makes it necessary to plan

national finances on a much more strategic basis

than simply seeking to ‘balance the books’ as if the

public finances were somehow disconnected from

the rest of the economy.

Austerity

‘Austerity’ is fiscal consolidation through

discretionary tax increases and spending cuts; as

opposed to growth fuelled fiscal consolidation.

On an aggregate level, recent IMF research by

Leigh et al. (2010) has provided useful estimates of

the impact of austerity measures on both output

and employment. They find a fiscal consolidation

package equivalent in scale to 1 per cent of GDP

will typically reduce GDP growth by approximately

0.5 per cent within two years and raise the

unemployment rate by about 0.3 percentage

points. Based on these estimates, if the Irish

Government proceeds with the planned €3.5

billion of further austerity measures in the next

budget, this would imply an additional of 0.7

percentage points to the unemployment rate.

However, budget deficit cuts are found to be more

painful in cases, such as the present one, when

these adjustments occur simultaneously across

many countries. The reason is straightforward in

that not every country can increase their net

exports at the same time. Budget cuts are also

found to be more damaging when monetary policy

is not in a position to offset them. If interest rates

are at, or just above, zero, as is currently the case,

the effect of the fiscal consolidation will ultimately

be more costly in terms of lost output. The pro-

cyclical austerity measures have heightened the

severity of economic collapse.

Clearly, a strategy focused solely on tax and public

spending cuts is highly unlikely to help the

economy to grow.

There has been an over-simplified dichotomy

made between ‘austerity’ and ‘growth’ in both

European and Irish discussion of the economic

crisis and potential solutions to it. For example,

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reducing inefficiency in public spending is sensible,

even though it may decrease economic output at

the time.

Overall, it is vital to recognise that different cuts

and taxes can have significantly different effect on

economic growth and employment. For example,

raising property taxes and cutting tax expenditure

are likely to have a significantly less damaging

effect on growth and employment than increasing

taxes on labour or cutting education spending. This

is explored in more detail in section eight with

respect to taxation.

The Need for a New Balance of Objectives

Economic policy being discussed at EU level now

appears to seek a more balanced approach,

combining elements of growth-promotion with

continued tightening of public finances to reduce

deficits and national debt levels; although the

precise detail about this balance changes from day

to day. For example, in the recently announced

€120 billion of measures at EU level, little of this

represents ‘new money’.

In the context of the re-balancing of economic

priorities there is an urgent need for

unemployment to be given more precedence,

given the long-term social and economic harm

than will result from persistent long-term

unemployment.

A focus on striking a balance between growth and

fiscal adjustment is evident in the latest IMF Fiscal

Monitor’s advice: “as long as financing allows, a

gradual but steady pace of adjustment seems

preferable to heavy frontloading” (April 2012).

Conversely, it is argued that countries like Ireland

are so heavily indebted that there is no alternative

to ‘heavy frontloading’ of austerity measures.

However, if Ireland’s national debt (including

banking debt) is in fact unsustainable at 119 per

cent of GDP, than frontloading of austerity is only

going to cause social and economic harm without

preventing the inevitable default on some of this

debt.

Sustainability

The concept of economic growth is not

uncontroversial. There are cogent arguments that

a finite planet cannot support infinite growth over

time. There are also those who argue that further

growth from our current position is already

unsustainable because so much of existing

economic activity depends on non-renewable

energy or on natural resources which are being

rapidly depleted. In this context, there are a

number of thinkers who regard the term

‘sustainable growth’ as a contradiction in terms.

According to this view, the economy can either

become sustainable or grow.

In the very near future, there is little doubt that

major aspects of the economy need to be radically

changed; for example, although Irish agriculture

and agri-food are growth sectors, they are highly

reliant on fossil fuels. On the positive front, Ireland

has potentially major natural advantages in wind

and wave generation of energy that could be

developed to reinforce Ireland’s energy security

and future sustainability.

In terms of the next few years, two aspects of

growth from our current position are arguably

sustainable; at least in the short term, while

acknowledging that large components of current

economy activity are not sustainable and will need

to be replaced with alternate activity that may not

contribute to GDP in the same way.

One aspect of growth is simply arithmetic GDP

growth due to a managed level of inflation. This

type of growth will not directly generate

sustainable long-term employment, although it

can be beneficial for reducing the scale of the

national debt relative to national income.

McDonnell (2012, forthcoming) argues that the

Euro zone should set an aggregate inflation target

for the next few years of 4 per cent; based on 5

per cent in the core and 2 per cent in the

periphery to rebalance competition between core

and periphery and to allow for nominal GDP

growth to diminish debt in the peripheral

countries.

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A second and more desirable aspect of GDP

growth is real growth based on increased

productivity; such as from more efficient use of

resources, innovation and sustainable advances in

technology. This type of growth is founded on

factors such as improved human capital (e.g.

education) in the labour force as well as

competition based around ability to innovate. This

form of growth in real GDP can generate increased

employment on a sustainable basis.

The sum total of GDP growth (i.e. inflation plus

real growth) is known as ‘nominal’ GDP growth.

However, some potential aspects of GDP growth

are not desirable. For example, a return to debt-

fuelled growth, such as another property bubble,

is neither sustainable nor desirable. It would not

lead to sustainable jobs. Moreover, the human and

social cost of post-bubble economic crashes is an

additional cost that further outweighs the

temporary benefit of this form of economic

growth. Likewise, short-term growth from new

forms of resource extraction (e.g. natural gas

‘fracking’) does not deal with the ultimate

unsustainability of relying on fossil fuels and would

increase environmental harm.

5. Productive Investment and

Stimulus The central question is then whether or not State-

led targeted investment can lead to sufficient

growth and knock-on benefits in the wider

economy to off-set the additional cost of

expenditure (including servicing and repaying any

public debt that might be incurred in making the

investment).

It is important at this point to distinguish between

the concepts of ‘productive investment’ and

‘stimulus’. Any form of spending in the economy

represents a form of stimulus, as there is simply an

increase in aggregate demand. Welfare spending

during a downturn is an example of such counter-

cyclical spending, often termed an ‘automatic

stabiliser’.

However, it is argued that borrowing money to

spend on current spending is counter-productive

as it will ultimately cost more to service and repay

the debt than the benefit from a temporary boost

to economic activity.

Some commentators have made an argument that

economic stimulus simply cannot occur here,

because Ireland is a small open economy.

Specifically, it is argued that investment would

‘leak’ out of the economy due to the level of

imports involved in many sectors of the economy.

According to this view, the benefit to the economy

would be low and in all probability insufficient to

generate enough resources to repay the

investment.

In the ESRI’s latest Quarterly Economic

Commentary (Summer 2012: 31-32), Duffy et al

claim that stimulus would not work in Ireland:

“We would be very cautious about a

domestic fiscal stimulus in Ireland, however

funded, as history and experience shows that such

a stimulus would have little effect on the domestic

economy, but would lead to a worsening of the

balance of payments. The crises of the 1950s and

the 1970s-1980s provide sufficient cautionary

evidence that, given the openness of the Irish

economy, a large portion of any stimulus would go

directly into imports.”

In contrast it can be argued that the ‘leakage’

argument has been over-simplified in the Irish

case. There are certainly areas of the economy

that involve a high concentration of imports.

Notably, the decision to give a ‘scrappage’ tax

break on new car purchases represented a

particularly poor choice of stimulus. While some

jobs were probably maintained in car dealerships,

the main result of the policy was a reduction in tax

revenue, combined with a flow of capital out of

Ireland to foreign car manufacturers at almost

certainly a net loss to the economy from the

policy.

However, the dismissal of stimulus appears to be

based more on conviction than attention to the

argument in favour of productive investment as

well as the empirical evidence that a significant

‘multiplier’ effect can be achieved from

investment in even the most open of economies;

such as US states, as demonstrated by Nakamura

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and Steinsson (2011). Moreover, the Irish

economy was not in fact an open economy in the

1950s and has changed significantly since the

1980s, not least from the growth in services

industries that are largely consumed domestically.

Productive Investment and ‘Intensive’

Growth

Productive investment is not just concerned with

raising public spending in order to increase

economic output; it is concerned with the target of

that investment. Ideally, investment should be

tightly concentrated on key infrastructure that will

enhance the productivity of private economic

activity, including investment in human capital

(e.g. education) alongside investment in physical

assets, such as roads and broadband Internet.

The ESRI Quarterly Economic Commentary also

states that “Growth in the economy will come

from exports and export driven investment.”

While this may be the case in terms of GDP

growth, especially given the concentrated focus on

exports among multinationals based in Ireland, it is

not automatically the case that this growth will

lead to significant decreases in unemployment.

Moreover, not every country can achieve net

exports at the same time, as logically a balance of

countries must be net importers for export-led

growth to work for others. In the context of the

global recession, the opportunity for export-led

growth should not be over-estimated.

Conversely, an alternative target for investment is

Ireland’s domestic economy, where the vast

majority of people are employed in SMEs providing

domestically consumed goods and services.

Moreover, investment should be targeted at

improving the skills and employability of those

who are unemployed. This form of investment is

based on increasing the level of education, skills

and innovative capacity in the economy to achieve

what is called variously long-term ‘Schumpeterian’

growth or ‘intensive’ growth. Investment in

people’s skills is vital to achieve a reduction in

structural unemployment.

Multipliers in Small Open Economies

Calculating the exact benefit of any particular type

of capital investment is challenging, involving an

analysis of a complex array of variables. The skill

and market-specific, area-specific knowledge that

this requires goes to the heart of the whole idea of

entrepreneurship.

Nonetheless, it is possible to measure the broad,

aggregate benefit to the economy of different

forms of investment. The result is what is known

as a ‘multiplier’, which indicates the extent of

beneficial spill-over in the economy from a given

level of investment.

While the key role played by capital accumulation

in the generation of growth is widely accepted, the

actual size of investment multipliers is a source of

deep contention amongst economists. This is

partially because of the multiplicity of confounding

effects in a complex adaptive system which make

constructing plausible fiscal multipliers notoriously

difficult. The official response in Ireland has been

to reject stimulus out of hand because it is argued

that much of the benefits of an investment

stimulus in small open economies like Ireland will

leak out of the country, thereby rendering the

stimulus ineffective.

To examine this claim by reference to the

empirical literature and to estimate the size of an

investment multiplier in a country as open as

Ireland, it is arguably most appropriate to compare

Ireland with sub-national regions in federations

such as the United States or Germany. Doing so

would also help to address the criticism that

Ireland is somehow ‘different’ to other European

countries and that fiscal policy will be ineffective in

Ireland.

A recent study by Nakamura and Steinsson (2011)

is useful in this regard. They identified a relatively

high fiscal multiplier of 1.5 for individual states

within the United States. The individual states

within the union are analogous to small open

economies and this result suggests that

appropriately targeted investment can be an

effective countercyclical mechanism in small open

economies. Nakamura and Steinsson used regional

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variation associated with military spending to

estimate the effect of a relative increase in

spending on relative output. The United States

example is illustrative for Ireland because

individual states within the US are even more open

to the rest of the US economy than Ireland is to

the global economy. In addition, most of the

economies of individual US states are either as

small, or smaller, than Ireland’s economy. The

findings are also of interest because the United

States is a monetary union. This means interest

rates cannot be raised in one state and held

constant in another as a response to the stimulus.

This implies there is no confounding effect on the

results caused by the loosening or tightening of

monetary policy. The Nakamura and Steinsson

findings also suggest that aggregate fiscal stimulus

will have large output multipliers when the

economy is at the zero lower bound, such as in

Ireland at present.

The economic crisis appears to have stimulated an

increase in research on using sub-national

variation in spending to estimate investment

multipliers. For example Shoag (2011) finds that

each dollar of government spending generates

$2.12 of personal income and that $35,000 of

additional spending generates another job in the

state where the spending occurs. The effects are

stronger when employment and labour force

participation are low. Acconcia, Corsetti and

Simonelli (2011) looked public works, and they

estimate fiscal multipliers as high as 1.4 on impact

and 2 when dynamic effects are counted.

Most of the post-crisis empirical work on sub-

national fiscal multipliers has found multipliers of

between 1.5 and 2.5.

Nakamura and Steinsson (2011) argue that their

estimates are: “much more consistent with New

Keynesian models in which ‘aggregate demand’

shocks – such as government spending shocks –

have large effects on output when monetary policy

is sufficiently accommodative than they are with

the plain-vanilla Neoclassical model”.

Given the paucity of business investment in

Ireland, it is highly likely that State-led investment

would have a significantly beneficial impact.

“…recent work which will be published in the

forthcoming IMF Fiscal Monitor will show … that

multipliers are larger when output is below

potential, as in the current cases of many

advanced economies.” (Cottarelli, March 2012).

The weight of empirical evidence makes a strong

case to reject the argument that Ireland’s small

open economy will render fiscal stimulus

ineffective. On the contrary, establishing and

embedding economic growth is a prerequisite to

restoring Ireland’s debt dynamics to a sustainable

equilibrium.

Moreover, there is reason to believe that the

Department of Finance’s forecasts for economic

growth under the parameters set by the National

Recovery Plan are too optimistic. The weakening

global economy, the low levels of lending to the

private sector, the continued deleveraging by the

private sector, and the Government’s fiscal stance,

will all combine to drag on economic growth and

employment levels in the short-to-medium term.

Hence, State-led productive investment is

imperative.

Proposals for Productive Investment

In 2010, TASC proposed an Economic Recovery

Fund to invest €3 billion in a loan guarantee

scheme for SMEs, seed capital for SMEs and start-

ups, retraining/upskilling of construction workers,

broadband Internet infrastructure, and R&D in the

alternative energy sector. These were “prioritised

areas on the basis of their capacity to have an

immediate impact on the economy and to be

absorbed quickly into the system.” The €3 billion

was to be sourced from the National Pension

Reserve Fund (NPRF).

In 2011, TASC proposed a modest €1.2 billion (0.75

per cent of GDP) of investment annually over four

years along similar lines. Schemes suggested

included the construction of a next generation

broadband network over a number of years in

collaboration with the private sector, as well as

investment in human capital through the funding

of re-training and up-skilling schemes targeted at

the long term unemployed. It was argued that this

€1.2 billion could be combined with additional

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Briefing Paper

funds from the European Investment Bank and

with the European Commission’s new project

bonds.

In their Spring 2012 Quarterly Economic Observer,

the Nevin Economic Research Institute published

proposals for a €15 billion investment programme

over five years “sourced from a mix of public,

private and European/International sources with

no additions to General Government Debt and

with a likely lowering in the public sector deficit as

a result of higher revenues and lower payments as

unemployment falls.”

This programme targets investment in water,

broadband, energy, early childhood and

retrofitting of homes. It is funded by a €5 billion

from the NPRF and commercial semi-states, €5

billion from private sources (including pension

funds), and €5 billion from the European

Investment Bank (EIB). The NERI proposal has been

taken up as part of the Plan B advocated by the

Claiming Our Future alliance of diverse civil society

organisations.

The more recent suggestions by TASC and NERI

amount to €3 billion of investment (c.1.8 per cent

of GDP) per annum, although the exact balance

might vary on a year-to-year basis. For example, it

will take time to gear up projects to absorb this

investment efficiently. Likewise, it makes sense to

taper off the investment in the latter years, rather

than suddenly stop investing.

6. Targets for Productive Investment

in Ireland The areas targeted by TASC and NERI for

productive investment display one or more of

three main characteristics: (1) they represent

areas where there is a strong fit between the

existing skills and other attributes of the people

who are unemployed in the labour force (e.g.

construction workers); (2) they represent an

investment in transforming the skills of the people

who are unemployed, to increase the overall

education/training attainment in the labour force

and to give them new skills that are better aligned

to likely future employment opportunities and to

increase ‘intensive’ growth; (3) they represent

investment in sectors that are more labour

intensive to maximise employment.

Retraining/up-skilling construction workers

In line with TASC’s particular focus on achieving

Schumpeterian/intensive growth to generate

sustainable employment, as well as avoiding the

risks to social cohesion from long-term

unemployment (which tends to be spatially

concentrated), it is absolutely essential for a major

State-led initiative to address the skills imbalance

in the economy, where far more people entered

construction-related activities than the economy

can sustainably support in future. Major initiatives

to support return to education and re-skilling are

vital to ensuring that many people who are

currently unemployed can find jobs in different

sectors of the economy.

Broadband Internet infrastructure

Broadband Internet is an example of a ‘general

purpose technology’ that is highly likely to lead to

a higher level of innovation in the economy. As

such it is an excellent target for productive

investment in Ireland’s context. In the immediate

future investment is in labour intensive work,

which will provide jobs suitable for ex-construction

workers, distributed right across the country,

especially in rural areas.

Moreover, the advantage of broadband

infrastructure is that it gives customers and

businesses access to a massively beneficial

infrastructure that allows for new businesses to be

established and also opens up new markets as

more of the Irish population goes online.

A more developed example of State-led strategic

role in broadband is given in the Annex.

Loan guarantee scheme for SMEs

Small and medium enterprises (SMEs) provide

nearly three quarters per cent of employment in

Ireland yet arguably receive less state support and

focus than multi-national corporations which,

while important to the overall economy, provide a

lot less employment.

The banking crisis, which underlies much of

Ireland’s economic woes, has led to a much

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Briefing Paper

reported drying up of business lending, with the

result that many viable businesses have folded

with the unnecessary loss of jobs.

Although there have been a number of

Government initiatives to address the lack of

credit available to SMEs (e.g. Credit Review Office),

the Government has yet to implement a loan-

guarantee scheme to help get credit flowing to

viable SMEs.

The logic of a State loan guarantee scheme is that

only a proportion of loans to SMEs would not be

repaid, which means that a relatively low

investment in this area could provide for a

significant level of credit being made available to

viable SMEs.

Given the State’s ownership or part-ownership of

all major banks in Ireland, these provide an

obvious implementation vehicle for such a

scheme.

Seed capital for SMEs and start-ups

The logic of providing seed capital for SMEs and

promising start-ups is due to the levels of

employment generated among SMEs and also the

fact that business capital investment in Ireland has

remained incredibly low for several years, leaving

a gap that needs to be filled.

R&D in the alternative energy sector

Ireland’s natural advantages in certain areas of

renewable energy generation have been well

documented, notably in terms of wind and wave-

generated power.

State-led investment in research and development

in this area is an example of ‘intensive’ growth (i.e.

growth built on increasing knowledge and

innovation). Moreover, Ireland’s considerable

over-reliance on imported fossil fuels is an energy

security issue and a national risk in terms of future

global oil and gas price fluctuations.

Energy

Investment in energy infrastructure, from

improved transmission to renewable

infrastructure, such as wind turbines, provides

some employment opportunities similar to

broadband (although with higher skill

requirements). Moreover, investment that

improves the efficiency of energy transmission or

that increases the proportion of Ireland’s energy

generation from renewable sources is an

important benefit to the wider economy.

Water

The employment benefits to investment in both

clean water production and waste water

treatment are similar to broadband and energy.

Ireland currently has a disproportionately high

level of lost clean water through leakages, which is

an inefficient use of an invaluable resource.

Moreover, alongside domestic consumption water

is an important component in some industries, not

least agriculture/agri-food, and investment in this

infrastructure could open up new business

opportunities.

Retrofitting of Homes

The energy-efficient retrofitting of homes with

insulation, double-glazing and so on, has similar

employment benefits and is immediately capable

of directly providing employment to ex-

construction workers without significant

retraining.

Investment in this area is also a means to tackling

fuel poverty, which is acute among older, rural

dwellers in cottage and bungalow housing. The

overall saving in energy costs is another benefit to

the economy, as most of Ireland’s energy is

essentially imported (in the form of oil, gas or

coal). Saving this money allows more resources for

domestic consumption of goods/services.

Implementation of a programme of retrofitting

could be organised through local authorities. This

would also allow the fine targeting of employment

opportunities at the specific localities with highest

unemployment, especially youth unemployment.

Early Childhood

Various international studies show the strong

benefit of early childhood education. Moreover,

childcare costs are extremely high in Ireland and

are a cause of labour immobility and withdrawal

from the labour force, as some people (especially

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Briefing Paper

women) cannot afford to work due to the cost of

childcare.

A State-led strategic investment in this area has

both a long term benefit from increasing early

childhood education, but also immediate benefits

for labour mobility.

7. Sources of Finance for State-led

Investment in Ireland Capital expenditure has to be carefully managed

and sustainably financed.

At an EU level, the argument against stimulus is

focused on the undesirability of increasing national

debt levels across EU member states, which would

be necessary in the short term to fund state-led

investment. Certainly, there is scepticism about

the ability of highly-indebted economies like

Ireland to raise funds through borrowing to

finance investment.

Hence, there is need to examine alternatives to

borrowing. The following is a brief overview of the

different potential sources of finance for

productive investment.

National Pensions Reserve Fund (NPRF)

The NPRF is managed by Ireland’s National

Treasury Management Agency, which has the

primary responsibility of managing the national

debt. As of 31st

March 2012, there is €5.8 billion in

this fund, which is essentially a sovereign wealth

fund.

The fund was expanded during Ireland’s boom

years; however €10 billion of the fund was used to

provide the major of Ireland’s €17.5 billion

contribution to the EU/IMF Programme. In

addition, the NPRF has been directed by the

Minister for Finance to invest in AIB and Bank of

Ireland in recent years, as part of the state’s

efforts to stabilise and recapitalise the banks. Since

2009, the Fund has invested €20.7 billion in the

two banks; however, the current value of those

investments is now only €9.4 billion7.

As of 31st

March 2012, the Discretionary Portfolio

of the NPRF was valued at €5.8 billion8. Since April

2001, the Discretionary Portfolio has delivered an

annualised return of 3.5 per cent. In principle, all

of this €5.8 billion could be redirected into

productive investment. The trade-off here is

between the current return on investments (often

outside Ireland) and the redirection on those

resources on domestic job creating industries.

The argument in favour of using this money for

productive investment, rather than simply

managing a portfolio of assets, is to focus the

investment on Ireland and to boost employment.

The NPRF represents the closest thing Ireland has

to a sovereign wealth fund, which (in line with a

Keynesian approach) was built up during a period

of high growth and can now be expended to

greater impact through counter-cyclical

investment during Ireland’s recession.

The downside of using the last of the NPRF is that

although it represents national savings, it did serve

a different original purpose, which was to help off-

set potentially unbearable pension costs that

Ireland faces with its aging workforce, including a

cohort of aging public servants with relatively high

pension benefits.

Commercial semi-state companies

Despite the Irish State’s current difficultly in

borrowing money, a number of Irish commercial

semi-state companies continue to borrow for

investment purposes and have good credit ratings.

It is argued that increased borrowing and

productive investment by Ireland’s commercial

semi-states offers a way of increasing overall

investment without increasing the general

government debt.

Semi-states are ideal vehicles for investment

because they are largely dealing with

infrastructure projects, they have years of

acquired knowledge in their specialist areas, they

have a ready absorption capacity for increased

investment, and they can leverage private

investment in addition to their own direct

investment.

However, there should be no illusions about the

sustainability of borrowing in an ‘off balance sheet’

manner. The overall capacity of the economy to

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Briefing Paper

absorb debt is limited and, as noted above, Ireland

is over-indebted in all three areas of sovereign

debt, corporate debt and household debt.

Moreover, the capacity of the State to manage and

repay debt has definite limits, regardless of

whether that debt appears in the official statistics

or whether it is elsewhere. Hence, the focus here

must be on the commercial semi-states taking on

corporate debt that remains with them and is

financed from their own income streams.

Private pension funds

The proposal to leverage the involvement of the

private pension industry was developed initially in

SIPTU, which was concerned with both economic

growth and the pension benefits of its members

when a temporary government levy was placed on

pension funds in 2011. SIPTU’s argument is to give

an exemption (tax break) on the pension fund levy

to those private funds which increase the level of

their investment in Ireland by six per cent. Given

that the funds total some €80 billion (owned by

people in Ireland), even a six per cent increase in

investment in Ireland would involve an estimated

increase in investment by them of over €4.5 billion

in the Irish economy9.

The role of the state would be to provide

investment opportunities (such as the targeted

areas above, possibly in the form of project bonds)

which this money could be directed with a

reasonable rate of return in addition to the

exemption on the levy. SIPTU identifies

infrastructural/utilities development as the “best

prospect for immediate returns in terms of job

generation while simultaneously enhancing

medium to longer term sectoral growth and

productivity”.

It can be noted that some other countries have

significantly higher proportion of pension funds

invested domestically, and that this proposal

would appear to be feasible. If investment vehicles

such as project bonds can be created, these could

also be attractive to private investment on a

voluntary basis.

Privatisation of State Assets

A variety of sources, including the authors of the

recent ESRI Economic Commentary, are sceptical

of the benefit of raising funds through the

privatisation or part-privatisation of state assets.

TASC has expressed doubt about the ability of

these sales to generate sufficient resources to

make any significant difference to Ireland’s overall

level of debt. However, part-private part-public

ownership of state assets has become the norm

across the EU and the involvement of some private

sector funds in utilities and other state companies

may leverage additional investment, although

further research would be needed to confirm

whether the public has ultimately benefited or

whether increased employment has resulted.

European Investment Bank (EIB)

Early on during the current crisis, it was

announced that the EIB’s lending capacity would

be increased by some €50 billion. Recent

announcements at EU level may enhance this

further.

The EIB has considerable experience in

implementing strategic productive and

infrastructural investment. There might be a

reasonable expectation that those countries worst

hit by the current recession, such as Euro zone

peripheral economies, might be given a significant

share of these resources.

Euro bonds

Alongside the EIB, there is potential for a further

role for EU-level initiatives. In particular, there are

various suggestions about how EU member states

could pool their ability to borrow money, by doing

so at EU level. This would allow countries like

Ireland to access finance on a cheaper basis than

currently, if the EU or Euro zone countries as a

whole were to borrow on the strength of their

aggregate debt and credit ratings.

Conversely, this involves the stronger economies

accepting higher borrowing costs as an act of

solidarity. While some solidarity is likely to be

necessary to reinforce the EU and Euro project at

this time, it is important to avoid a situation where

perverse incentives become built into any Euro

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Briefing Paper

bond or similar scheme, as this could reduce the

pressure on weaker economies to make necessary

reforms.

8. Taxation and Growth Increased taxation is, strictly speaking, an austerity

measure (i.e. a measure that will contract rather

than expand the economy). More or less all

increases in taxation will have a negative impact

on economic growth and will supress employment.

However, given Ireland’s low tax base, there is

some scope for tax increases to fund investment.

Moreover, there are a number of changes to fiscal

policy that can play a role in generating growth

and jobs by changing the structure of the tax

system rather than increasing the overall level of

taxation.

Ireland’s Low Tax Base

General government revenue in the EU averages

44.6 per cent of GDP (EU27, 2011, Eurostat).

However there is considerable variation.

It is not only Nordic countries that have with high

tax levels, such as Denmark (the highest) on 56 per

cent. Hungarian government revenue is 52.9 per

cent of GDP and French is 50.7 per cent. The

lowest level of Government revenue in the EU is in

Lithuania (32 per cent), but Ireland is seventh from

the lowest on the table with general government

revenue of 35.7 per cent of GDP, which is nearly

nine percentage points lower than the EU average.

While higher taxation is a means not an end of

public policy, it is striking that many of the worst

performing countries in the current crisis are low

tax economies, compared to higher tax countries

which have proven more resilient.

It is sometimes argued that Ireland’s level of

general taxation should be viewed as a percentage

of GNP. If so, national debt also needs to be

viewed in this way and, at roughly 130-140 per

cent of GNP, this is a bleak picture. There is a

reasonable argument that all the resources of

Ireland’s GDP, including multinational corporations

in Ireland, need to be harnessed to address

Ireland’s crisis. Although lower taxation is part of

Ireland’s attractiveness to foreign direct

investment, the sustainability of this strategy over

time needs to be considered objectively.

At any rate, the impact on economic growth of a

change in tax policy will vary depending on the

country’s starting point. There are diminishing

returns to adjusting taxes upwards and tax

increases tend to have smaller effects on growth

when they are starting from a low base. Thus low

tax countries such as Ireland have a higher

potential net benefit from tax increases than high

tax countries.

The question of raising tax to fund investment

boils down to a straightforward cost–benefit

analysis, and there is reason to think than certain

taxes increases (such as cuts to tax breaks and

increased taxation on property) would be less

damaging to the economy and, moreover, this

damage could be more than off-set by the benefits

of using these resources for productive

investment.

Growth-Friendly Tax Increases

While all taxes impact upon economic efficiency

and income distribution, these impacts differ

sharply depending on the type of tax. For example,

the distortionary effect on the allocation of

resources in the economy is likely to be less severe

for taxes on immovable property than it is for

taxes on income or consumption. Numerous

empirical results, for example Johansson et al.,

(2008), and Heady et al., (2009), have consistently

shown recurrent taxes on immovable property to

have the smallest negative impact on long-run

economic growth. This is followed by other

property taxes and then by consumption taxes

such as VAT, excises and certain environmental

taxes. Labour taxes and corporate taxes tend to

have the most distortionary effect on economic

activity.

Changing the balance of taxation between

different tax sources, such as moving from taxes

on labour to taxes on property, should be

considered a complement to improving the design

of individual taxes.

Recurrent taxes on net wealth are generally less

distortionary than taxes on financial and capital

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Briefing Paper

transactions. They are also a mechanism for

redistributing income. Wealth taxes also help

assist tax authorities in fighting tax evasion and

criminal activity by revealing inconsistencies

between income flows and wealth. When taxing

net wealth, an important principal is to ensure that

all classes of asset are treated the same way and

that no assets, such as pensions, are made exempt

from the tax. Exempting or giving favourable

treatment, such as reduced rates, to certain asset

categories distorts private investment decisions

and provides a mechanism for tax avoidance. A

common strategy is for an individual to borrow

money to reduce his or her net wealth and then

use these borrowings to purchase tax exempt

assets.

Inheritance taxes are an important complement to

net wealth taxes. These taxes have a minimal

impact on economic growth and play an important

redistributive role in the economy. Gift taxes are a

necessary supplement to inheritance taxes as

otherwise it is straightforward to avoid the

inheritance tax.

Redistribution of Income and Wealth

Another use of the tax system can be to alter

where tax is generated, even if working within the

same overall level of tax. For example, stimulus in

the economy (increased aggregate demand) would

be created by simply redistributing money from

savers to spenders.

People on lower incomes spend proportionately

more (and often all) of their income, most of which

goes into the local economy.

In general consumption taxes tend to be less

progressive than personal income taxes and

consequently shifting the composition of the tax

take from taxing personal income to taxing

consumption is likely to be regressive overall.

Likewise, a heavy reliance on consumption taxes as

opposed to other taxes such as capital taxes, as is

the current case in Ireland, leads to higher wealth

inequality by increasing the value of assets and by

shifting the burden of taxation to low earners.

Targeting wealth and higher earners to achieve

redistribution of income to lower earners will

increase spending in the economy, which itself

represents a form of stimulus.

Tax Expenditure

More generous exemptions and reduced tax rates

for housing assets, relative to those available for

other forms of investment, are likely to be

particularly damaging to long-term growth

because they distort capital flows away from

productive sectors and toward housing. Housing

assets have long been given favourable treatment

in Ireland. This has undoubtedly harmed long-term

growth and negatively impinged on the

accumulation of productive capital by the private

sector. It certainly contributed to the boom-bust

cycle that produced the current economic crisis.

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Conclusion This paper has outlined the important links

between the public finances, economic growth and

employment. In this context, it has been argued

that there is scope for targeted productive

investment by the Irish state, which would be

likely to have a significant effect on job creation,

both in the short term (through direct spending

and spin-offs from that ‘stimulus’) and in the long

term (from the improved infrastructure that in

turn underpins the productive capacity of the Irish

economy).

Further detailed examination is required on

implementation of a growth strategy for Ireland,

including organisational structures, the capacity of

different sectors to efficiently absorb investment,

management capacity, and so on.

Despite Ireland’s massively constrained position, it

appears that the arguments in favour of State-led

productive investment are credible and worthy of

further detailed examination. The alternative is a

high unemployment future, with an unacceptable

human cost and the risk of lost social cohesion.

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Annex: Broadband Internet in Ireland

versus Singapore10 A concrete example of productive investment is

the laying of cable and other infrastructure to

bring broadband Internet access to more homes

and businesses. This illustrates the two elements

of productive investment very clearly. In the short

term, there is a ‘stimulus’ in the economy due to

the direct employment of hundreds of people to

install or upgrade the infrastructure. In the long

term, this very clearly opens up new business

opportunities. People living in less central

locations have access to more goods and services

than before and local businesses have the

opportunity to establish their own web presence.

For example, local craft companies would benefit

from broadband Internet if they have a photogenic

website displaying their wares and providing

online shopping.

Once the infrastructure is in place, the role of the

state will diminish and the money allocated to this

project will withdraw, leading to a diminution of

employment. However, the aim is that the benefit

of the improved infrastructure to the economy will

more than compensate for these lost jobs through

the provision of other, different jobs.

To stick with this particular example, the risks for

Ireland are that broadband Internet infrastructure

lags behind other countries, giving them a

competitive advantage. This may mean that some

opportunities are lost forever; for example, global

consumers may buy wool hats from Estonia that

they might otherwise have bought from websites

of suppliers in Connemara.

Moreover, broadband also points to the role of the

state in organising, if not delivering, infrastructure.

There is a dilemma in the current Internet market

in Ireland, where the two major companies

involved in this sector may objectively benefit

more from co-operation but remain incentivised to

compete, to their own mutual disadvantage over

time. Specifically, the problem arises that Ireland is

currently developing two broadband Internet

networks in parallel in our cities and towns, but

very limited networks in rural areas. Ultimately,

bringing practically all of the population into

broadband would increase the customer base for

both suppliers, but whichever invests resources in

improving the infrastructure risks providing their

competitor with a ‘free ride’ as they could reap the

reward of competing for this expanded customer

base.

The obvious solution is for the State to organise a

broadband Internet investment programme on the

basis of proportionate involvement from each of

the companies who stand to benefit from

universal broadband Internet access creating an

expanded national customer base. This is what

was done in Singapore and it remains a prominent

example of the State playing a strategic role in

ensuring that all citizens benefit from vital

infrastructure, while at the same time providing an

expanded customer base for private companies.

Despite the obvious differences between Ireland’s

low population density and Singapore’s high

density and relatively tiny overall land area, there

are cogent lessons in the strategic role that the

State can play in dealing with a failure of private

actors to deliver essential infrastructure. This does

not have to involve State ownership of the key

infrastructure, but it does require strong co-

ordination by the State to resolve market failure

and address what is a natural monopoly situation.

The provision of fixed-wire broadband is

characterised by high fixed costs to build the

network infrastructure and by low marginal costs

to connect new customers to the network and to

supply those customers with additional ‘bits’ of

data. This cost structure is consistent with a

natural monopoly. According to William Baumol

(1977) natural monopolies are characterised by

network infrastructure, high fixed costs, high

barriers to entry, economies of scope, economies

of scale, and low or zero marginal cost. Where this

particular set of characteristics accurately reflects

an industry or service then multi-firm production

or provision of services will be more costly than

production or provision by a single entity. Richard

Posner (1969) defines natural monopolies: “If the

entire demand within a relevant market can be

satisfied at lowest cost by one firm rather than two

or more, the market is a natural monopoly”.

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Briefing Paper

Faulhaber and Hogendorn (2001) argue the

structure of the broadband market will depend on

population density. They model that below a

certain population density the broadband market

will be a natural monopoly.

Ireland’s low population density reduces the

commercial case for potential competitors to enter

the fixed-line broadband market. As density per

square kilometre increases, so too will the number

of firms in the market. Competition is found to be

variable, with densely populated areas having

more options than sparsely populated areas. This

has implications for broadband coverage and for

price. Ireland has a much lower density (62

persons per square kilometre) than the OECD

average of 109 persons per square kilometre, and

its broadband market therefore has a much

greater propensity to form a monopoly than would

the broadband market of the average OECD

country. Ireland’s low density reduces the

commercial case for potential competitors to enter

the fixed-line broadband market.

The lack of access to high-speed fibre-based

broadband in Ireland is likely to remain an issue of

concern for the Irish Government over the next

few years. The Telecommunications and Internet

Federation estimates the cost of a fibre network

for Ireland would be in the region of €2.5 billion

(TIF, 2010). Forfás (2011) has estimated that the

cost of fibre deployment to the premises in all

towns with a population greater than 1,500 will be

€2.23 billion.

Given that Ireland has €5.8 billion in the NPRF and

given broadband Internet’s status as a general

purpose technology, investing up to half of the

NPRF funds in this area would be an effective way

of boosting Ireland’s productive and employment

capacity.

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REFERENCES Acconcia, A., Corsetti, G., and S. Simonelli (2011) “Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-Experiment”, CEPR Discussion Paper DP8305. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1810270 Baumol, W. J. (1977) ‘On the Proper Cost Tests for Natural Monopoly in a Multi-product Industry’. American Economic Review, 67 (5), p. 180 Cecchetti, S. G., Mohanty, M. S., and F. Zampoli (2011) “The Real Effects of Debt” 2011 Jackson Hole Achieving Maximum Long-Run Growth Symposium, August 25-27 2011. Cottarelli, Carlo (March 2012) ‘Fiscal policy in advanced economies: fiscal adjustment, efficiency and growth’. http://www.imf.org/external/np/speeches/2012/031312.htm Department of Finance (2006) Budget 2006, Volume III (on tax expenditure) ESRI (Summer 2012) Quarterly Economic Commentary www.esri.ie FEPS/TASC (June 2010) Stimulating Recovery – Papers presented to FEPS/TASC seminar http://www.tascnet.ie/upload/file/Stimulating%20Recovery%20WEB.pdf Faulhaber, G. R. and Hogendorn, C., 2000. The Market Structure of Broadband Telecommunications. The Journal of Industrial Economics, 48 (3), pp. 305-329. Forfás, 2011. Ireland’s Advanced Broadband Performance and Policy Priorities. [online] Available at: http://www.forfas.ie/publications/2011/title,8528,en.php Goodbody (2006) Review of Property-Based Tax Incentive Schemes, Volume II in Budget 2006. Heady, C., Johansson, A., Arnold, J., Brys, B. and Vartia, L (2009) “Tax Policy for Economic Recovery and Growth” University of Kent School of Economics Discussion Papers, Available at: https://www.kent.ac.uk/economics/documents/research/papers/2009/0925.pdf IMF (April 2012) Fiscal Monitor http://www.imf.org/external/pubs/ft/fm/2012/01/fmindex.htm Indecon (2006) Review of Property Based Tax Incentive Schemes, Volume I in annex to Budget 2006. Johansson, A., Heady, C., Arnold, J., Brys, B. and Vartia, L (2008) “Taxation and Economic Growth” OECD Working Paper Series No. 620, Available at: http://ideas.repec.org/p/oec/ecoaaa/620-en.html#related Lawless, M. F. McCann and T. McIndoe Calder (February 2012) ‘SMEs in Ireland: Stylised facts from the rread economy and credit market’. Central Bank of Ireland conference. http://www.centralbank.ie/stability/Documents/SME%20Conference/Session%201/Paper%202/Paper.pdf Leigh, D., DeVries, P., Freedman, C., Guajardo, J., Laxton, D., and A. Pescatori (2010) “Will it Hurt? Macroeconomic Effects of Fiscal Consolidation”, IMF World Economic Outlook, October 2010. McDonnell, T. (2011) “The Debt and Banking Crisis: Progressive Approaches for Europe and Ireland”, TASC Discussion Paper, May. http://www.tascnet.ie/upload/file/DebtBanking190511.pdf Nakamura, E. and J. Steinsson (2011) “Fiscal Stimulus in a Monetary Union Evidence from US Regions,” NBER Working Paper 17391.

Prospects for Job Creation | July 2012

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Nevin Economic Research Institute (Summer 2012) Quarterly Economic Observer http://www.nerinstitute.net/download/pdf/neri_qeo_summer_2012.pdf Nevin Economic Research Institute (Spring 2012) Quarterly Economic Observer http://www.nerinstitute.net/download/pdf/qeo_spring_2012.pdf Posner, R. (1969) ‘Natural Monopoly and its Regulation’. Stanford Law Review, 21 (3), pp. 548-643. Shoag, D. (2011) “The Impact of Government Spending Shocks: Evidence on the Multiplier from State Pension Plan Returns” Harvard Working Paper, Available at: http://www.people.fas.harvard.edu/~shoag/papers_files/shoag_jmp.pdf TASC (2011) Towards an Equality Budget: TASC’s Proposals for Budget 2012 http://www.tascnet.ie/upload/file/TASC%20PBS%20website.pdf TASC (2010) Investing in Recovery, Jobs, Equality: TASC’s Proposals for Budget 2011 http://www.tascnet.ie/upload/file/Investing%20in%20Recovery,%20Jobs,%20Equality_141010.pdf TASC (2010) Failed Design? Ireland’s Finance Acts and their Role in the Crisis http://www.tascnet.ie/upload/file/Analysis%20of%20the%20Finance%20Act%202010%2004%20May%202010%20FINAL%20print%20format.pdf Telecommunications and Internet Federation (2010). Building a Next Generation Access Network for Ireland: Issues and Options. [online] Available at: http://www.tif.ie/Sectors/TIF/TIF.nsf/vPages/Broadband~Publications~building-a-next-generation-access-network-for-ireland-16-04-2010 1 We are very grateful for the sponsorship of this briefing paper by Catherine Murphy TD. The opinions and

conclusions in the paper are the authors’ alone and do not necessarily represent the views of Catherine Murphy TD. 2 Central Statistics Office <www.cso.ie>

3 Figure generated from CSO StatBank <www.cso.ie>

4 979,590 children were aged 0-13 in Census 2011

5 Figure generated from CSO StatBank <www.cso.ie>

6 See for example www.social-europe.eu

7 http://www.nprf.ie/Publications/2012/NPRFQ12012PerformanceAndPortfolioUpdate.pdf

8 http://www.nprf.ie/Publications/2012/NPRFQ12012PerformanceAndPortfolioUpdate.pdf

9 See, http://www.siptu.ie/media/pressreleases2012/fullstory,15833,en.html and

http://siptucommunicationsdepartment.newsweaver.ie/images/21161/41184/2554835/SIPTUInvestingforJobsandGrowth.pdf 10

See, for example, http://www.etw.org/2003/case_studies/reg_dev_singapore-one.htm on the role of Government co-ordination in delivering universal access to Broadband.