Did Ireland’s 12.5 Percent Corporate Tax Rate Create the Celtic Tiger?
Offshore banking and tax haven expert Nicholas Shaxson has launched a new blog, Fools’ Gold, to look at issues of ‘competitiveness’ and so-called ‘competition’ between nations. We’ve often taken issue with that policy goal, since it gives precedence to crushing labor as a way of lowering product prices to stoke exports. This approach is dubious for anything other than small economies, since all countries cannot be net exporters. Undue focus on exports as a driver of growth results in increasing international friction, such as the currency wars that are underway now. Moreover, as we have discussed separately, trade liberalization has gone hand in hand with liberalization of capital flows, in no small measure due to US efforts to make the world safe for what were then US investment banks. Yet Carmen Reinhardt and Ken Rogoff pointed out in their study of financial crises, higher levels of international capital flows are associated with more frequent and severe financial crises.
In addition, lowering wage rates reduces domestic demand. In countries like the US, where the domestic economy is much larger than the export sector, lowering internal demand to stoke exports is misguided.
Here we look at a first case study, the real reasons behind the growth and meltdown of the famed Celtic tiger, Ireland.
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