US Corporate Tax Rate Cuts: Spillovers to the Irish Economy

54 Pages Posted: 15 Nov 2019

Date Written: July 9, 2019

Abstract

We examine spillovers to the Irish economy from US corporate income tax rate cuts and find they lead to a small but persistent increase in Irish economic output. Our analysis of the transmission channels shows that an increase in investment, employment and exports in the externally-financed industrial sector largely drives this expansion. We also find that output spillovers from US corporate income tax cuts are larger when there is slack in the Irish labour market. Our findings suggest that the changing structure of the Irish economy means any spillovers to real economic activity from the recent US corporate tax cuts could be relatively minor. However, the larger presence and shifting focus of foreign multinational corporations’ operations in Ireland means lessons from past US corporate tax cuts may be of limited value in predicting the effects of the recent US tax system reform.

Keywords: corporate tax shocks, cross-border spillovers, Irish economy

JEL Classification: E62, F23, F44

Suggested Citation

Clancy, Daragh, US Corporate Tax Rate Cuts: Spillovers to the Irish Economy (July 9, 2019). European Stability Mechanism Working Paper No. 38, 2019, Available at SSRN: https://ssrn.com/abstract=3486814 or http://dx.doi.org/10.2139/ssrn.3486814

Daragh Clancy (Contact Author)

European Stability Mechanism ( email )

6a Circuit de la Foire Internationale
L-1347
Luxembourg

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