Taxation, expenditures and the Irish miracle

Paul Klein, Gustavo Ventura

Research output: Contribution to journalArticlepeer-review


We examine the role of fiscal policy in accounting for the remarkable rise of Ireland from one of Western Europe's poorest countries to one of its richest in just a few years. We focus on the importance of business tax reform and overall changes in fiscal policy, in conjunction with other factors, which we model as a residual rise in Total Factor Productivity (TFP). We conduct our analysis using a two-sector, small open economy model where production requires tangible and intangible capital services, and where inflows of capital are limited by a collateral constraint (disciplined to account for the GNP to GDP gap). We find that the much discussed reductions of business taxes played a significant, but secondary, role in the Irish miracle. However, tax reform and other changes strongly reinforce each other. We also find that Ireland's openness to capital movements was crucial: under the same driving forces, a closed economy would have experienced a significantly smaller rise in GDP.

Original languageEnglish (US)
Pages (from-to)1062-1077
Number of pages16
JournalJournal of Monetary Economics
StatePublished - Jan 2021


  • Corporate taxation
  • Economic development
  • Fiscal policy
  • Ireland

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Taxation, expenditures and the Irish miracle'. Together they form a unique fingerprint.

Cite this