Boston or Berlin? How Does Ireland’s Tax and Spending Compare?

Abstract

Fiscal policy is often described as a simple choice between a high-tax, high-spending model and a low-tax, low-spending one. This is true to a point. But the size of government is also shaped by factors such as demographics and economic growth. This paper examines Ireland’s tax and government spending in comparison with other high-income European countries, accounting for these factors. While Ireland appears to operate a low-tax, low-spend model, this is largely explained by its relatively young population and strong economy. A younger population means the government currently spends less on pensions and healthcare than it would otherwise. Population ageing will increase spending in these areas and move Irish spending closer to European norms. Strong economic growth also lowers spending relative to national income. On the revenue side, Ireland collects less than its European peers, mainly due to comparatively low social contribution payments by employers and employees.