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Monday, April 04, 2005


There is a very interesting report here on why Ireland's economy is growing.
The authors of the study, Eric Verhulst, Paul Vreymans and Willy De Wit, have performed a multi‑regression analysis, trying to establish the relative weights of 25 possible causes of growth differences, including age structures, education levels, inflation, number of annual working hours, interest rates, the ratio between direct and indirect taxes, the size of the public deficit, the impact of the accession to the EU etc. etc.. The most striking conclusion was that 93% of the differences between growth performances could be explained by govern­ment spending and tax levels.

In 1985, the Irish economy was in a shambles. It was facing excessive budgets deficits and minimal growth. Its GNP p.c. amounted to only 65% of the Belgian level. In addition, Irish unemployment stood at 17% against 10% for Belgium. Until 1985 both countries followed similar Keynesian policies of deficit spending. In 1983 Belgian public spending even exceed­ed 50% of GNP.

I must admit I doubt if economics has reached such a degree of scientific certainty that it is possible to justify saying 93% rather than merely 90%+ of the effect is because of Ireland's fully reproducible economic programme. On the other hand if it was only 20% it would still be well worth running the country competently (as opposed to the present method).

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