Economic Survey of Ireland 2006

 

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Published on 2 March 2006
Executive Summary

An Economic Survey is published every 1½-2 years for each OECD country. Read more about how Surveys are prepared

The OECD assessment and recommendations on the main economic challenges faced by Ireland are available by clicking on each chapter heading below. Chapter 1 identifies the challenges for which the subsequent chapters provide in-depth analysis and policy recommendations.










 

 

 

Chapter 1. Key challenges
This chapter reviews the key challenges facing the Irish economy. Ireland has continued its exemplary economic performance, attaining some of the highest growth rates in the OECD. After a remarkable decade, per capita income has caught up with the EU average.  Further progress will require strong productivity growth and continued increases in labour supply. The chapter looks at the roles of competition policy, the education and science systems and public sector management as ways of generating productivity growth. The labour supply challenge hinges on increases in participation of females and older workers and on immigration, particularly of skilled workers. Ireland is also going through a transition period during which it is upgrading its social services and physical infrastructure. Finally, the chapter reviews the large macroeconomic risks, especially those related to the housing market, and the importance of keeping inflation in check if the country is to remain an attractive location for foreign investors

Chapter 2. Boosting growth through greater competition
This chapter discusses ways to strengthen competition in order to boost productivity growth and help restrain inflation. It reviews the general competition framework and discusses the regulatory barriers to competition in a range of sectors. These include retail trade, pharmacies and pubs along with network industries such as electricity, telecoms and buses.

Read also ECO Working Paper 491. Boosting competition in Ireland

Chapter 3. investing in skills
Impressive gains in labour productivity have boosted Ireland’s economic growth since the early 1990s. They were underpinned by a steep rise in the educational attainment of the working-age population. This largely represents the pay-off on the investment that was made from 1967 onwards with the provision of free secondary education to all. Educational outcomes are now broadly in line with the OECD average but still far below the results achieved by the best performers in the OECD. Further efforts at all levels, from pre-primary school to tertiary education and continued learning, are needed to bring the education system nearer to best practice.

Chapter 4. More innovation, better results
In the years to come, productivity growth will need to play the primary role in sustaining Ireland’s strong economic performance because labour supply is already relatively high and there are speed limits to increasing it further. While the productivity performance has been stunning over the past decade, Ireland has relied to a large extent on foreign corporations as the main generator of innovation and research. The local research base remains thin and public funding of R&D, although having grown quickly, has barely kept pace with economic output. This chapter reviews Ireland’s innovation performance and discusses policy options for better focussing scarce funds on delivering commercially-oriented innovations.

Chapter 5. Closing the Infrastructure gap
Investment in infrastructure has not kept pace with Ireland’s very rapid economic growth. Infrastructure deficits are beginning to show in a number of areas: road congestion, a lack of broadband access and a shortage of waste disposal capacity could become bottlenecks restricting long-term growth. High targets have been set for investment in public infrastructure over the medium term, involving traditional government funding together with public private partnerships. For this programme to fulfil its objectives of improving living standards and providing a base for sustained growth, it is crucial to guarantee that public funding is allocated to projects with the highest priority and to aim for value for money. Another key to a successful strategy is to avoid the pitfall of overinvestment by ensuring that infrastructure is used efficiently via generalising user charges.

Chapter 6. Removing obstacles to employment for women
Women have contributed a great deal to Ireland’s economic growth, including by joining the labour force in large numbers. The rise in female participation since 1990 has been amongst the strongest in the OECD, but from a low base. Female participation rates remain below the OECD average for all except the under-thirties. Cultural attitudes and low educational attainment among older women are factors, but policy settings play a role as well. Support to families is not targeted at working parents, implying that the return to work is low for many mothers. Working parents of school-age children also face difficulties in reconciling employment and work because out-of-school care is insufficiently developed. The tax system should be further improved to support second earners, most of whom are women, so as to strengthen their incentive to enter the labour market and reduce the bias in favour of the home production of services such as childcare. This chapter reviews these issues and offers recommendations to continue to create a more favourable environment for women who want to enter the labour market.

Read also ECO WOrking Paper 511. Removing obstacles to employment for women in Ireland

Chapter 7. The housing boom
The Irish housing market is very buoyant. The housing boom is driven by strong economic growth, dynamic demographics and low interest rates. However, large tax advantages and relatively lenient credit policies by banks have also played their part, and prices may have become overvalued. To the extent that high house prices reflect favourable tax treatment, they may lead to economic inefficiencies by drawing excessive resources into residential construction. While a soft landing appears the most likely prospect, a disorderly correction of house prices would pose risks for macroeconomic and possibly financial stability. In this context, one policy lever available to the government would be a phased removal of the tax advantages associated with housing. In addition, banks should remain cautious in their lending and provisioning policies.

Read also ECO Working Paper 492 Ireland's housing boom: What has driven it and have prices overshot?

Chapter 8. Keeping public finances on track
This chapter reviews Ireland’s recent fiscal record and discusses the challenges that policymakers will face in coming years. Revenues have been extremely buoyant, giving the government an opportunity to substantially boost spending across the board. As economic activity slows towards more normal rates of growth, the budget may come under increasing pressure from social spending and the large infrastructure programme. The fiscal framework needs some strengthening to keep public finances on track. This will include various public management reforms – such as improving personnel practices in the civil service – and putting greater focus on getting value for money from public outlays, including the various tax expenditures.

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A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.

 

Obtain this publication                                    

For further information please contact the Ireland Desk at the OECD Economics Department at webmaster@oecd.org.  The OECD Secretariat's report was prepared by David Rae and Boris Cournède under the supervision of Peter Hoeller.

 

Additional Information                                      

 

 

 

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