Fiscal Squeeze in Two Recessions in Ireland
Ireland has been taken as an exemplary instance of fiscal adjustment, not once but twice in its recent history: in the late 1980s, and again after 2008. Ireland has appeared to be a model case which would support the ‘expansionary fiscal contraction’ argument that economic recovery and renewed growth follow from fiscal consolidation. This chapter examines the merits of this argument in both time periods. It proposes a methodological approach based on analysing political and policy choice, and re-evaluates the issue of the composition of adjustment as between spending cuts and tax increases. It finds that international and domestic economic conditions had bigger effects on outcomes in this case than is conventionally recognised. The chapter thus sets out a new framework for understanding the Irish case, and presents findings that are at odds with the conventional wisdom concerning the politics of fiscal squeeze and austerity in Ireland.
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