Long-Term Growth Dissected

• Output growth exhibited a clear turnaround beginning in 1987 after slowing steadily since 1980. Growth increased
steadily over the next decade and remained high until the onset of the global financial crisis.
• In order to assess whether the growth performance in Ireland was stronger than it would have been in the absence of
fiscal reforms, it must be evaluated against a set of appropriate comparator countries.
• Although the gap between Irish growth and growth in the EU narrowed over the 2000 to 2007 period, it still remained
2.9 percentage points higher than the EU COUNTRIES

• This result is supported by comparing post-reform growth with an estimated

counterfactual growth series that would have prevailed in the absence of
reforms based on the synthetic control method
• To check the robustness of the results above, a series of tests, including the
placebo test, was performed. Following Ababdie and others each country in
the group of fifteen EU countries was assumed to have had the identical
event of interest (i.e., the fiscal reforms) as Ireland when, of course, it did
not. suggesting that the impact of the reform on Ireland is significantly
greater than any other country chosen at random
B. Fiscal Reform: A Game Changer

• The significant increase in labor utilization may have been affected by the comprehensive package of fiscal and structural reforms although demographics and increased female labor force
participation also contributed

• Although small relative to the other factors, human capital contributed to economic growth.
• Reduced corporate taxes and a high degree of trade openness increased investment by foreign companies, which increased productivity and growth
• At the end of the 1990s, investment patterns began to change

• 35. The reforms that took place in 1987–89 appear to have had a positive impact on longrun growth in
Ireland. The expenditure-based fiscal consolidation and the subsequent tax cuts helped to create conditions
in which private-sector investment, especially from foreign owned corporations, could flourish. These firms
were able to hire workers that were more educated than the previous generation due to education reform
and were able to stay competitive due to moderate wage growth and labor stability that came from the
labor partnership agreements. Fiscal reforms were not the only contributors to the growth improvement—
other factors played a role. In particular, favorable demographics and increased labor participation
supported the growth take-off by supplying labor and supportive external environment was a source of
strong demand.