Researchers at the Economic and Social Research Institute have
asserted that Ireland’s tax policy “could be one of the key contributing
factors to the country’s strong economic performance”.
In a paper titled ‘Effective Tax Rates in Ireland’ the authors show Irish tax rates on labour (income tax) have been consistently lower than the EU average.
The same goes for taxes on capital and corporate profits.
However, taxes on consumption (like VAT) have been higher than the EU average.
From 1995 to 2017, it finds that taxes on labour were on average 8% lower here than the EU average.
Corporate tax was 7% lower, on average. Taxes on consumption, by contrast, were 4% higher than average.
The paper noted a “mild upward trend” in income tax here during the
Troika years and found that changes in consumption taxes were
more “volatile” than the rest of the EU.
When it came to social security costs, the paper finds rates here “significantly lower” than the EU average.
The average contribution rate for Irish employers from 1995 – 2017 was 12.07% while the EU average was 17.4%.
The average employee contribution was 5.63% compared to an EU average of 12.95%.
The paper puts forward a “simple correlation” that higher taxes
on labour lead to fewer hours worked. It also draws a simple correlation
between higher taxes on capital and corporate profits and lower rates
of investment by business.
This, it says, confirms standard economic theory and suggests
Ireland’s tax policy could be one of the factors behind the economy’s
However, it warns against drawing this simple conclusion and says further research needs to be done.