Payroll taxes: capital grants and Irish unemployment

Abstract

A recent OECD study concluded that no other member country had a tax/subsidy system as biased against the use of labour as the Irish. This view of the flawed nature of the Irish system has, however, been disputed by many commentators. The question to be pursued here is whether these disagreements stem from conflicting views of the causes of the prevailing unemployment problem. In an earlier paper, Barry (1987b), I attempted to identify the various macroeconomic perspectives on unemployment that distinguish the competing schools of thought in Irish economic debate from one another; three views in particular emerged: firstly, the Classical small-open-economy view that production is cost-constrained; secondly, the neo-Keynesian view that aggregatedemand deficiency is also important, and thirdly, the Structuralist view that barriers to world-marketentry represent the major growth-inhibiting constraint facing a late-industrialising economy such as Ireland's.