short term multipliers…what the government is doing

With all the broughahah about the real level of fiscal multipliers, one might imagine that the Irish government, with the ESRI, central bank, and dept of finance at its disposal, not to mention lots of academics who would do it if asked, would be working to establish urgently what the real situation is for Ireland. after all, the level and sign of these beasts matters for government policy.

Wouldn’t you?….

DÁIL QUESTION

NO 204

To ask the Minister for Finance if any analyses are being undertaken in view of the IMF World Economic Outlook note on multipliers to establish the short-term multiplier for Government spending..

– Thomas Pringle.

* For WRITTEN answer on Tuesday, 6th November, 2012
Ref No: 47386/12

REPLY

Minister for Finance ( Mr Noonan) : At the outset, I want to stress that the Government’s key objective of supporting economic growth that delivers jobs remains to the forefront in framing fiscal and economic policy. Fiscal consolidation reduces the fiscal deficit and increases investor confidence which in turn lowers the cost of borrowing and helps to put public debt on a declining path.

Having said that I fully recognise that there will be a short term reduction in output before these medium term benefits are realised. So it is a difficult balancing act between the need for consolidation on the one hand and the need to support the emerging recovery on the other. There is, I think it is fair to say, an acknowledgement among many commentators that we in Government are getting this balance right.

The recent IMF World Economic Outlook suggests that the average size of fiscal multipliers (the effect of consolidation on growth) across countries may have been underestimated in recent years. More recently, senior IMF staff tasked with monitoring developments in Ireland pointed to the multiplicity of factors at play in acting as a dampener on growth and acknowledged that there was no convincing evidence that the fiscal multiplier for Ireland was underestimated compared with that assumed under the programme.

Ireland is a small, open economy with imports accounting for over three quarters of GDP. This means that a considerable amount of consolidation leaks out through reduced demand in countries we import from. We can already see this in the Balance of Payments figure, which shows the current account moving from a deficit of -5.7% of GDP in 2008 to a surplus of 1.1% in 2011.

Fiscal multipliers vary according to the fiscal instruments used, and the impact on aggregate demand as a result of expenditure changes can differ from tax changes. I would reiterate the Government’s cognisance of this and its commitment to implementing consolidation in as growth-friendly a manner as possible.

In order to correct our excessive deficit and minimise the cost to the taxpayer through sustaining investor confidence and keeping the cost of borrowing as low as possible, Ireland is committed to implementing further consolidation over the next three years. Evidence of the rewards associated with this approach is already visible through the lowering of bond yields since early summer and the successful return of the NTMA to the debt market.

So, no. They aren’t. But look, we’re exporting loads….

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One thought on “short term multipliers…what the government is doing

  1. pat lotex

    the gov wants to make us pay now for our house, which we build paid for every thing our selfs, did it bit by bit untill we had a house, no bank, no grants, no noting we had to do it bit by bit cause we had little or no money and the gov has the never to turn around to ask us to pay them so the they would have more money for there pockets, let all in the gov live on the same amount of money as the rest of us buy and pay for every thing they need and not take taxes to pay for these things

    Reply

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