Celtic Tiger

Causes

Many economists credit Ireland's growth to a low corporate taxation rate (10 to 12.5 percent throughout the late 1990s), and to transfer payments from members of the European Union like France and Germany that were as high as 7% of gross national product. Ireland's membership in the European Union since 1973 helped the country gain access to Europe's large markets, in addition to EU subsidies. Ireland's trade had previously been predominantly with the United Kingdom.[2]

This aid was used to increase investment in the education system and physical infrastructure. These investments increased the productive capacity of the Irish economy and made it more attractive to high-tech businesses.

The libertarian Cato Institute has suggested that the EU transfer payments were economically inefficient and may have actually slowed growth.[4] The Heritage Foundation also downplayed the role of transfer payments. The European think tank WorkForAll studied the factors involved in the differential growth rates of European countries, and concluded that 93% of Ireland's diffential economic performance was attributable to improvements in taxation and decreased public spending beginning in 1985. Other analyses suggest that much of the growth was due to the fact that the economy of Ireland had lagged behind the rest of northwestern Europe for so long that it had become one of the few sources of a relatively large, low-wage labour pool remaining in Western Europe.

In the 1990s, the provision of subsidies and investment capital by Irish organisations (such as IDA Ireland) encouraged high-profile companies like Dell, Intel, and Microsoft to locate in Ireland. These companies were attracted to Ireland because of its European Union membership, relatively low wages, government grants and low tax rates. Ireland also offered a young, well-educated, English-speaking labour force. Irish workers could effectively communicate with Americans—especially compared to other low-wage EU nations such as Portugal and Spain—a factor that was vital to U.S. companies choosing Ireland for their headquarters. It has also been argued that the demographic dividend from the rising ratio of workers to dependants due to falling fertility, and increased female labor market participation, increased income per capita.

A favourable time zone difference allows Irish employees to work the first part of each day while U.S. workers sleep. This was particularly attractive to companies with large legal and financial departments; an Irish lawyer could work on a lawsuit in the morning while his American counterpart slept. U.S. firms were assured by the limited government intervention in business compared to other EU members, and particularly to countries in Eastern Europe. Growing stability in Northern Ireland brought about by the Good Friday Agreement further established Ireland's ability to provide a stable business environment. The building of the International Financial Services Centre in Dublin led to the creation of 14,000 high-value jobs in the accounting, legal and financial management sectors.

Between 1997 and 2004, Charlie McCreevy, the Minister for Finance, pursued fiscal policies such as low taxation and contributed to a dramatic reduction in public debt over the boom years. He was voted Ireland's best Minister for Finance in 2004 by Finance magazine.

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