NCPA - National Center for Policy Analysis

Market Friendly Ireland Thrives

December 30, 1998

Following two decades of economic stagnation and spiraling public sector deficits, Ireland's government in 1987 charted a course of economic liberalization said to be even more far reaching than Margaret Thatcher's. This about-face has resulted in undreamed prosperity and left continental European countries gasping in the dust.

  • Government spending as a percentage of gross domestic product was cut from as high as 54 percent to 33 percent -- compared to an average of about 50 percent for European Monetary Union countries and 36.8 percent for the United States.
  • Economic growth has averaged 8 percent of GDP since 1993.
  • Unemployment has dropped to 7.8 percent from 16 percent -- and is expected to fall below 5 percent over the next few years -- compared to over 10 percent in Germany and France.
  • Ireland's top corporate tax rate has been reduced from 40 percent to 32 percent and will fall to 28 percent in April -- while revenues from corporate taxes doubled to 3.5 percent of GDP since 1990.

Starting in 2003, the top corporate tax rate for all companies will be 12.5 percent -- a move which reportedly sent a number of European Union leaders into a rage. Ireland's low taxes, its more flexible labor markets and business-friendly environment frustrate EU governments burdened by welfare systems they can no longer afford -- and uncompetitive economies that are left exposed by the single currency.

Observers report that Ireland still has a lot of liberalization left to do -- particularly in the realm of privatization. But in a little over a decade, its policy choices have paid off handsomely for its citizens.

Source: Therese Raphael, "Irish Economy Creates a Pot of Gold," Wall Street Journal, December 30, 1998.

 

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