Why Irish Eyes Are Smiling

For those of you who still don't believe that lower government spending and lower taxes have an important effect on economic growth, read the example of Ireland over the past two decades. Workforall, a European think tank in Belgium, has studied the economic performance of various European economies and compared those of Belgium and Ireland from 1984 ‑ 2002. They found that Belgian real economic growth over this period amounted to 42%, while Ireland's growth was nearly quadruple that level at 167%. As a result, Ireland went from one of the poorest countries to one of the richest countries in just 18 years.

The authors of the study, Eric Verhulst, Paul Vreymans and Willy De Wit, have performed a multi-regression analysis, trying to establish the relative weights of 25 possible causes of growth differences, including age structures, education levels, inflation, number of annual working hours, interest rates, the ratio between direct and indirect taxes, the size of the public deficit, the impact of the accession to the EU etc. The most striking conclusion was that 93% of the differences between growth performances could be explained by govern­ment spending and tax levels.

Some countries learn, some do not.