Quarterly Economic Commentary Winter 2024

McQuinn, Kie an; O'Toole, Cono ; O'Shea, Dónal
Resea ch Repo
Qua e ly Economic Commen a y Win e 2024
ESRI Fo ecas ing Se ies
P o ided in Coope a ion wi h:
The Economic and Social Resea ch Ins i u e (ESRI), Dublin
Sugges ed Ci a ion: McQuinn, Kie an; O'Toole, Cono ; O'Shea, Dónal (2024) : Qua e ly Economic
Commen a y Win e 2024, ESRI Fo ecas ing Se ies, The Economic and Social Resea ch Ins i u e
(ESRI), Dublin,
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ESRI
Fo ecas ing
Se ies
Decembe 2024
Qua e ly Economic
Commen a y Win e 2024
KIERAN MCQUINN, CONOR O’TOOLE
AND DÓNAL O'SHEA
QUARTERLY ECONOMIC COMMENTARY
Kie an McQuinn
Cono O’Toole
Dónal O’Shea
Win e 2024
The o ecas s in his Commen a y a e based on da a a ailable by 5 Decembe 2024.
D a comple ed on 9 Decembe 2024.
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THE AUTHORS
Kie an McQuinn is a Resea ch P o esso a he Economic and Social Resea ch
Ins i u e (ESRI) and an Adjunc P o esso a T ini y College Dublin (TCD). Cono
O’Toole is an Associa e Resea ch P o esso a he ESRI and an Adjunc P o esso a
TCD. Dónal O’Shea is a Resea ch Assis an a he ESRI.
Resea ch No es a e sho pape s on ocused esea ch issues. They a e subjec o
e e eeing p io o publica ion.
Special A icles a e published in he Qua e ly Economic Commen a y in o de o
os e high-quali y deba e on a ious aspec s o he I ish economy and I ish
economic policy. They a e subjec o e e eeing p io o publica ion.
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no i sel ake ins i u ional policy posi ions. I has been pee e iewed by ESRI esea ch colleagues
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i| Table o con en s
TABLE OF CONTENTS
SUMMARY TABLE .................................................................................................................................... II
THE IRISH ECONOMY – FORECAST OVERVIEW ....................................................................................... 3
DOMESTIC AND INTERNATIONAL OUTLOOK .......................................................................................... 4
GENERAL ASSESSMENT ......................................................................................................................... 49
RESEARCH NOTE
Es ima ing I eland’s labou sha e………………………………………………………………………………………..53
Dónal O’Shea
SPECIAL ARTICLE
Dis ibu ional impac o ax and wel a e policies: Budge 2025…………………………………………..71
Ka ina Doo ley, Shane Dunne, Clai e Keane, Simona Sándo o á, Aga he Simon
SPECIAL ARTICLE
Assessing expec a ions o Eu opean house p ices…………………..…………………………………………..93
Akhilesh Kuma Ve ma and Kie an McQuinn
Qua e ly Economic Commen a y – Win e 2024 | ii
SUMMARY TABLE
2022
2023
2024
2025
Ou pu ( eal annual g ow h %)
P i a e consume expendi u e
10.9
4.9
2.6
3.2
Public ne cu en expendi u e
3.0
4.2
4.3
3.8
In es men
4.1
2.8
-23.4
19.9
Modi ied in es men
10.4
-4.3
4.1
6.8
Expo s
13.6
-6.0
9.8
4.3
Impo s
16.4
1.3
8.3
5.7
G oss domes ic p oduc (GDP)
8.7
-5.7
-1.1
4.5
Modi ied domes ic demand
9.1
2.7
3.2
4.1
P ices (annual g ow h %)
Consume P ice Index (CPI)
7.8%
6.3%
2.1%
1.0%
Labou ma ke
Employmen le els (’000)
2,639
2,705
2,760
2,811
Unemploymen le els (’000)
122
121
125
125
Unemploymen a e (as % o labou o ce)
4.4%
4.3%
4.3%
4.2%
Public inance
Gene al go e nmen balance (€bn)
8.6
7.5
23.4
9.4
Gene al go e nmen balance (% o GDP)
1.7
1.5
4.6
1.8
3 | Qua e ly economic commen a y – Win e 2024
The I ish economy – Fo ecas o e iew
• As we app oach he end o he yea , he I ish domes ic economy looks se
o egis e s ong g ow h in 2024. We expec modi ied domes ic demand
(MDD) o inc ease by 3.2 pe cen in 2024 be o e g owing o 4.1 pe cen
in 2025 d i en by eal income g ow h and highe housing in es men .
• O e all g oss domes ic p oduc (GDP) is expec ed o decline on he back o
la ge in ellec ual p ope y in es men ou lows and inc eased impo s.
• O e all, he obus pe o mance means ha he labou ma ke has seen a
con inued inc ease in employmen , wi h unemploymen nea o i s
his o ically low a e. A esea ch no e o he Commen a y by O’Shea (2024)
looks a ends in he I ish labou sha e o e he pas 25 yea s.
• Excheque eceip s ha e also pe o med s ongly in 2024. E en in he
absence o he ‘Apple paymen ’, we belie e he adjus ed gene al
go e nmen balance (GGB) will be a ound 2 pe cen o GDP his yea .
• Howe e , o 2025, he e a e no able downside isks, in pa icula wi h he
po en ial o he new US adminis a ion o implemen he economic
policies ou lined du ing he p esiden ial campaign. A box by Fi zge ald
highligh s he ongoing impo ance o US in es men in he I ish economy.
• The p ospec o a global ade wa , gi en he T ump adminis a ion’s
p oposals on a i s, he impac o axa ion policy on in ellec ual p ope y
loca ion, allied o he possible a ge ing o he pha maceu ical sec o
based in I eland, could ha e pa icula implica ions o bo h ac i i y le els
in he domes ic economy and o he Excheque eceip s.
• I hese impac s ma e ialise mo e quickly han expec ed, pa icula ly hose
on he public inances, some aspec s o planned u u e expendi u e le els
ou lined in Budge 2025 may ha e o be e ised in he new yea .
• While Budge 2025 had a welcome signi ican commi men o in es men
in he I ish economy going o wa d, he e we e o he elemen s in he
Budge which could ha e been mo e a ge ed, as sugges ed by Doo ley e
al. (2024).
• Wi h house p ices expe iencing a esu gence in he p esen yea , he
Commen a y de o es a signi ican amoun o a en ion o house p ice
dynamics. A box by Egan and McQuinn assesses he sus ainabili y o ecen
mo emen s while a special a icle by Kuma Ve ma and McQuinn (2024)
examines he po en ial in luences on house p ice expec a ions.
Domes ic and In e na ional Ou look | 10
FIGURE 7 COMPONENTS OF BUILDING AND CONSTRUCTION INVESTMENT – YEAR-ON-YEAR GROWTH –
CONSTANT PRICES
Sou ce: Cen al S a is ics O ice.
O e all, we expec in es men o decline by 23.4 pe cen in 2024, mainly because
o he d op in in ellec ual p ope y ac i i y ou lined abo e. We expec his sha p
decline o e e se in 2025, wi h a g ow h a e o 19.9 pe cen o he yea .
3
Fo
he mo e s able modi ied in es men , we expec g ow h o 4.1 pe cen in 2024
bu a eco e y o 6.8 pe cen g ow h in 2025. This e lec s he inc ease in
cons uc ion in es men o dwellings in 2024 and he an icipa ed lowe in e es
a e en i onmen .
Gi en he expec ed changes in bo h consump ion and modi ied in es men , we
now belie e ha modi ied domes ic demand (MDD), he p e e ed indica o o
domes ic economic ac i i y, will g ow by a obus 3.2 pe cen in 2024 and a an
enhanced a e o 4.1 pe cen in 2025.
Mul ina ional expo s eco e bu majo inc ease in isk due o likely T ump policy di ec ion
No wi hs anding he weakness seen in mul ina ional expo s o e he pas 18
mon hs, he e is eme ging e idence ha a eco e y is unde way in key sec o s,
such as pha maceu icals, which ha e begun o g ow s ongly again.
Figu e 8 con as s he key sec o s o pha maceu icals and compu e se ices wi h
he unde lying economy. Goods expo s in pha maceu icals g ew by 26.3 pe cen
in Q3 2024. Goods expo s declined in bo h ca ego ies in 2023; howe e , non-
pha maceu ical goods expo s ha e eco e ed mo e slowly. Fo se ices, compu e
3
This ebound makes he echnical assump ion ha he le el o in ellec ual p ope y in es men in Q2 2025 will e u n
o a mo e no malised le el. This leads o an inc ease in his ca ego y o in es men in 2025, wi h knock on
implica ions o expo s and impo s.
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024
Dwellings
O he building and cons uc ion
Imp o emen s

11 | Qua e ly economic commen a y – Win e 2024
se ices expo s ha e been g owing as e han unde lying se ices expo s since
he beginning o 2023.
The inal se ies p esen ed in Figu e 8 is labelled ‘in e na ionalisa ion’ and consis s
o con ac manu ac u ing and goods o p ocessing. The ola ili y o his se ies has
d i en he ola ili y o he headline expo igu e in ecen yea s.
FIGURE 8 COMPONENTS OF EXPORTS – VALUE – YEAR-ON-YEAR GROWTH
Sou ce: Cen al S a is ics O ice.
Figu e 9 p esen s goods expo s di ided in o chemicals and o he goods. Chemicals
consis en ly accoun o o e 60 pe cen o goods expo s. No ably, he g ow h
a e o chemicals expo s in Q3 2024 (26.3 pe cen ) a exceeded he g ow h a e
o expo s o o he goods (11 pe cen ).
FIGURE 9 GOODS EXPORTS BY COMPONENT – VALUE – SHARE OF TOTAL AND YEAR-ON-YEAR GROWTH
Sou ce: Cen al S a is ics O ice.
No e: ‘O he goods’ is calcula ed by aking chemicals om he o al alue o goods expo s.
Despi e he ecen ebound in mul ina ional expo s, he e has been a majo
inc ease in he downside isks o he I ish mul ina ional sec o since he US
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024
Goods - Pha ma Goods - Non-pha ma In e na ionalisa ion
Compu e se ices O he se ices
-50%
0%
50%
0%
50%
100%
Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024
O he goods (excluding chemicals) (sha e) (LHS)
Chemicals (sha e) (LHS)
Chemicals (g ow h y-on-y) (RHS)
O he goods (excluding chemicals) (g ow h y-on-y) (RHS)
Domes ic and In e na ional Ou look | 12
p esiden ial elec ion. The incoming T ump adminis a ion has signalled i s
in en ion o make a signi ican depa u e in e ms o US ade policy, wi h ecen
announcemen s o a i s on impo s om Canada, China and Mexico. The e has
also been a no able ocus on he I ish ade su plus and he ole o US mul ina ional
p o i s in he I ish economy. I is likely ha he impac o any p o ec ionis ade
s ance in he US would be mul i ace ed o I eland. In gene al, inc eased a i s a e
likely o lowe ade bila e ally, bu he e a e likely o be second ound e ec s mo e
gene ally i wo ld ade is dis up ed. As a small, and ex emely open, economy
I eland has his o ically been a majo bene icia y o globalisa ion. Changes in policy
di ec ion ha lead o g ea e ade agmen a ion a e likely o disp opo iona ely
impac he I ish aded sec o .
The implica ions o hese po en ial dis up ions o I eland a e e iden . A la ge
p opo ion o ou ade is expo ed di ec ly o he US. Figu e 10 p esen s he di ec
expo sha es o I ish me chandise ade o he US. In 2024 (Q1–Q3) app oxima ely
31.2 pe cen o ou me chandise expo s wen o he US. Fo pha maceu ical
p oduc s, his sha e was o e 38 pe cen o he same pe iod. Gi en his eliance
on he US as a des ina ion ma ke , and he impo ance o pha ma o ou expo s,
any dis up ion in hese ade lows would ha e no able economic consequences,
as well as an impac on he public inances h ough lowe co po a ion axa ion
eceip s. These da a do no include se ice expo s o he in e na ionalisa ion lows
such as con ac manu ac u ing ha a e unde aken by US companies.
FIGURE 10 US SHARE OF IRISH MERCHANDISE EXPORTS
Sou ce: Cen al S a is ics O ice and ESRI calcula ions.
Ano he indica ion o he exposu e o he I ish economy o signi ican changes in
in e na ional ading condi ions can be ound in he me chandise ade balance o
I eland wi h he US. I is p esen ed in Figu e 11 as a pe cen age o I ish GDP. I is
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2019 2020 2021 2022 2023 2024
US sha e o o al US sha e o non-pha ma US sha e o pha ma
13 | Qua e ly economic commen a y – Win e 2024
clea I eland uns a e y la ge me chandise ade su plus wi h he US, which has
luc ua ed anywhe e be ween 6 and 9 pe cen o I ish GDP.
FIGURE 11 MERCHANDISE TRADE BALANCE WITH US, % OF IRISH GDP
Sou ce: Cen al S a is ics O ice and ESRI calcula ions.
In e ms o he o e all o eign di ec in es men (FDI) lows, Box A below conside s
u he hese impac s, and he eliance o he I ish FDI sec o on US-owned
companies.
The impac o he new adminis a ion on FDI is also highly unce ain bu comes
wi h conside able downside isks. In he sho e e m, he inc eased unce ain y,
and desi e by he T ump adminis a ion o e u n manu ac u ing ac i i y o he US,
could dis up o slow new mul ina ional in es men s in o I eland by US-owned
companies. In he medium e m, many US mul ina ionals, in pa icula in he
pha maceu ical indus y, ha e made la ge, sunk-cos in es men s in I eland in
plan and machine y. These in es men choices we e d i en by mul iple ac o s
including axa ion, access o EU ma ke s and o he s uc u al ac o s. These
in es men s a e also likely o ha e long payback pe iods beyond he ou yea s o
he incoming T ump adminis a ion.
BOX A FOREIGN DIRECT INVESTMENT IN IRELAND
1. In oduc ion
The I ish economy is unusual among EU coun ies in e ms o he e y la ge ole
played by o eign mul ina ionals in na ional ou pu and income. This ole has
con inued o g ow in ecen yea s, con ibu ing o he o e all success o he
economy in exi ing om he global inancial c isis and e u ning o s eady apid
g ow h.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Q1
2015
Q3
2015
Q1
2016
Q3
2016
Q1
2017
Q3
2017
Q1
2018
Q3
2018
Q1
2019
Q3
2019
Q1
2020
Q3
2020
Q1
2021
Q3
2021
Q1
2022
Q3
2022
Q1
2023
Q3
2023
Q1
2024
Domes ic and In e na ional Ou look | 14
The con ibu ion o ne na ional p oduc (NNP) om o eign mul ina ionals is
accoun ed o by hei wage bill and he co po a ion ax hey pay.4,5 Fo
domes ic i ms, he con ibu ion is equal o hei wage bill and hei p o i s,
be o e ax. Table 1 shows he sha e o NNP accoun ed o by o eign and
domes ic business o 2013 and 2023.
TABLE 1 SHARE OF NNP BY SECTOR AND OWNERSHIP, %
2013
2023
Ou pu ( eal annual g ow h %)
To al
Fo eign
Domes ic
To al
Fo eign
Domes ic
Ag icul u e
1
0
1
1
0
1
Manu ac u ing
12
5
6
12
9
3
Elec ici y, gas, and wa e
2
0
2
1
0
1
Cons uc ion
3
0
3
5
1
5
Dis ibu ion, anspo and es au an s
22
5
17
18
5
13
In o ma ion and communica ion
6
3
3
9
7
2
Financial se ices
10
4
6
8
4
3
Real es a e ac i i ies
7
0
7
10
0
9
P o essional se ices
10
2
7
14
5
9
Public admin, educa ion and heal h
24
0
24
19
1
19
A s, en e ainmen e c.
3
0
3
2
0
2
To al
100
21
79
100
32
68
Sou ce: Cen al S a is ics O ice ins i u ional sec o accoun s.
No e: Figu es may no sum o 100 due o ounding.
In 2013 he o eign sec o o he economy accoun ed o a ound 21 pe cen o
NNP, bu by 2023 i accoun ed o 32 pe cen , a e y la ge inc ease in sha e.
This g ow h in sha e was accoun ed o by a majo expansion in he alue added
o he I ish economy om o eign-owned i ms ope a ing in he manu ac u ing,
IT and p o essional se ices sec o s.
2. Compa ison wi h EU27
The CSO da a do no allow a b eakdown o he con ibu ion o NNP by coun y
o owne ship o o eign mul ina ional en e p ises (MNEs). Howe e , Eu os a
da a show FDI ac oss he EU o 2021, including he numbe o en e p ises, alue
added, numbe s employed, he wage bill and he g oss ope a ing su plus. The
o eign in es o s a e disagg ega ed by coun y o o igin o he in es o , as well
as by coun y whe e he in es men is loca ed.
4
The issue o coun y o owne ship is no always clea . As companies ge aken o e , he na ionali y o owne ship may
change. In addi ion, a company’s sha eholde s can eside in di e en coun ies, which can also be di e en o he
coun y in which he company’s head o ice is ac ually egis e ed.
5
The s anda d measu e now used o measu e na ional income in I eland oday is modi ied g oss na ional income
(GNI*). Howe e , his measu e includes some dep ecia ion on he capi al s ock, capi al ha is used up and has o be
eplaced o main ain ou pu (and income) a i s cu en le el. Thus a be e measu e o na ional economic wel a e is
ne na ional income (NNI) – excluding dep ecia ion. Howe e , his measu e is no always a ailable o o he
economies, especially when measu ing ou pu a cons an p ices, so GDP and GNI a e p e e ed o in e na ional
compa isons. The di e ence be ween NNI and ne na ional p oduc (NNP), used he e, is indi ec axes and subsidies.
15 | Qua e ly economic commen a y – Win e 2024
The da a on co po a ion ax paid by o eign i ms a e no a ailable o o he EU
coun ies, allowing a compa ison o he con ibu ion o o eign i ms o na ional
income be ween I eland and o he EU coun ies, as in Table 1.
Value added da a o I eland a e dis o ed by he eloca ion o subs an ial
in ellec ual p ope y asse s by US i ms. So i is no use ul o use alue added
da a when compa ing I eland wi h he EU. Ins ead we ocus on employmen and
wages, as he da a allow a compa ison be ween I eland and he EU o he
numbe s employed and he wage bill paid by o eign mul ina ionals.
2.1 Employmen
Fo 2021, Table 2 shows he sha e o o al employmen in I eland and he EU27
ha is accoun ed o by companies o igina ing om a ange o di e en
coun ies. Da a o China and Hong Kong a e no a ailable o he EU27.
In 2021, US i ms accoun ed o 7.8 pe cen o o al employmen in I eland,
compa ed o only 1.8 pe cen in he EU as a whole. O he EU27 i ms and UK
i ms each accoun ed o a ound 5 pe cen o employmen in I eland. Howe e ,
UK i ms accoun ed o only 1 pe cen o employmen in he EU as a whole.
The EU shows a e y di e en pa e n o ha o I eland, wi h o eign
mul ina ionals accoun ing o a much smalle sha e o o al employmen – 12
pe cen o he EU27 compa ed o 24 pe cen o I eland. Fo he EU27,
in es men om o he coun ies wi hin he EU accoun s o a highe sha e o
domes ic employmen han in I eland, a 7 pe cen . This is mo e han o se by
he much smalle sha e o in es men om ou side he EU. Fo I eland such
i ms ( hose ou side he EU) accoun o 19 pe cen o o al employmen
compa ed o only 5 pe cen o he EU27.
TABLE 2 SHARE OF TOTAL EMPLOYMENT ACCOUNTED FOR BY FOREIGN FIRMS, 2021, %
Sha e o employmen ( %)
I eland
EU27
In a-EU27 ( om 2020)
4.9
6.8
No way
0.0
0.1
Swi ze land
0.7
0.8
UK
5.4
0.9
Tü kiye
0.0
0.0
Ex a-EU27 ( om 2020)
18.7
5.0
Canada
0.7
0.1
Uni ed S a es
7.8
1.8
China excep Hong Kong
0.1
Hong Kong
0.1
Japan
0.5
0.4
Aus alia
0.2
0.0
Domes ic coun y
76.4
88.2
All FDI
23.6
11.8
Economy
100.0
100.0

Domes ic and In e na ional Ou look | 16
TABLE 3 SHARE OF EMPLOYMENT IN THE EU27 LOCATED IN IRELAND FOR MULTINATIONALS
I eland’s sha e o EU27 (%)
Employmen
Wages
In a-EU27 ( om 2020)
0.9
1.3
No way
0.5
0.6
Swi ze land
1.1
1.7
UK
7.8
6.8
Ex a-EU27 ( om 2020)
4.7
5.3
Canada
7.4
6.4
Uni ed S a es
5.5
6.7
Japan
1.7
2.3
Aus alia
6.9
6.3
All FDI
2.5
3.2
Economy
1.3
1.7
Table 3 shows ha , while I eland accoun ed o 1.3 pe cen o o al
employmen in he EU in 2021, i accoun ed o 2.5 pe cen o employmen by
o eign mul ina ionals. While I eland’s sha e o in a-EU employmen was lowe
han a e age, his was mo e han o se by he highe sha es o employmen by
UK and US i ms.
2.2 Wages
The da a in Table 3 show he wage bill o o eign mul ina ionals in each coun y.
Wi h highe li ing s anda ds in I eland, and hence highe pay a es, he wage bill
in I eland o MNEs accoun ed o 1.7 pe cen o he EU wage bill, highe han
he employmen sha e. The sha e o he wage bill paid in I eland by i ms om
o he EU coun ies was highe han he employmen sha es, as employmen in
I eland, accoun ed o by such i ms, was ela i ely highly paid. This is especially
ue o US and Japanese i ms ope a ing in I eland. By con as , UK i ms end
o employ people a lowe pay a es in I eland han elsewhe e in he EU.
TABLE 4 AVERAGE EARNINGS IN FOREIGN OWNED ENTERPRISES, €, THOUSANDS
I eland
EU27
I eland/EU27
In a-EU27 ( om 2020)
60.0
42.5
1.41
No way
61.0
50.4
1.21
Swi ze land
79.2
51.5
1.54
UK
46.7
52.9
0.88
Tü kiye
75.4
23.8
3.17
Ex a-EU27 ( om 2020)
62.3
55.2
1.13
Canada
47.5
54.6
0.87
Uni ed S a es
76.5
63.0
1.21
China excep Hong Kong
57.9
Hong Kong
58.1
Japan
73.7
55.9
1.32
Aus alia
50.3
55.2
0.91
Domes ic
44.1
34.9
1.27
All FDI
61.9
47.8
1.29
Economy
48.3
36.4
1.33
17 | Qua e ly economic commen a y – Win e 2024
Table 4 shows ha a e age ea nings in I eland we e a hi d highe han o he
EU. The able shows a e age ea nings pe employee o I eland and he EU,
b oken down by i ms’ coun y o owne ship. Fo eign MNEs pay mo e han
domes ic i ms: in I eland o eign i ms paid €62,000 a yea compa ed o
€44,000 o he es o he economy, while in he EU o eign i ms paid €48,000
compa ed o €35,000 o he es o he economy.
US i ms paid 21 pe cen mo e in I eland han he EU a e age o such i ms.
Because o hei high pay a es, and hei big sha e o employmen , hese i ms
explain why pay a es in o eign MNEs in I eland we e 29 pe cen highe han
o he EU. Pay a es o UK-owned i ms in I eland we e unde 90 pe cen o
wha UK i ms pay elsewhe e in he EU, e lec ing he ac ha UK i ms in
I eland a e concen a ed in lowe paid sec o s, wi h a smalle sha e o skilled
wo ke s. In he es o he EU, UK i ms employ a g ea e sha e o highly
educa ed employees.
3. Sec o al de ail
Table 5 shows I eland’s sha e o o eign mul ina ional employmen and wages
in he EU o a ange o di e en sec o s whe e he e a e de ailed da a. As can
be seen om he able, 2.5 pe cen o all employees in o eign MNEs in he EU
we e loca ed in I eland. Fo US i ms, he sha e was e en highe a 5.5 pe cen .
The sha e o he wage bill paid in I eland by o eign i ms was e y high: 5.5 pe
cen o he wages paid by such i ms ac oss he EU. Table 5 also shows ha a
la ge sha e o o eign i ms’ employmen in he EU in he IT, inancial and
p o essional se ices sec o s occu ed in I eland. The IT sec o in I eland
accoun ed o o e 11 pe cen o all employmen in ha sec o in he EU by US
i ms. In addi ion, 14 pe cen o he wage bill o US i ms in he EU IT sec o was
paid in I eland.
TABLE 5 IRELAND’S SHARE OF EU TOTAL, %
Employmen
Wage bill
I eland’s sha e o EU27 (%)
All FDI
US
FDI
All FDI
US FDI
Economy
2.5
5.5
5.5
6.7
Manu ac u ing
1.6
5.5
2.2
Manu ac u e o ood p oduc s e c.
2.8
3.5
Wholesale and e ail ade e c.
2.3
2.5
2.4
2.4
In o ma ion and communica ion
4.5
11.1
6.6
Compu e p og amming e c.
4.7
11.4
7.1
14.2
Financial and insu ance ac i i ies
6.5
20.2
6.8
18.0
P o essional, scien i ic e c.
3.1
5.1
3.6
Adminis a i e and suppo se ice
2.5
3.2
Domes ic and In e na ional Ou look | 18
Sepa a e da a a e no a ailable o he pha maceu ical sec o , which is an
impo an sec o in he I ish economy. I is also domina ed by o eign, especially
US, MNEs. They a e included in he o al o he manu ac u ing sec o .
4. Co po a ion ax
While he Re enue Commissione s gi e de ails o he co po a ion ax paid by all
o eign MNEs, hey don’ b eak i down by na ionali y o in es o . Howe e ,
Eu os a gi es de ails o he p o i s (g oss ope a ing su plus) o mul ina ionals
by na ionali y. Assuming ha he ax paid is p opo ional o hei p o i s, Table
6 shows he dis ibu ion o co po a ion ax paymen s by na ionali y.
TABLE 6 ESTIMATED CORPORATION TAX BY NATIONALITY OF INVESTOR, 2021, € MILLIONS
€, Million
In a-EU
700
No way
32
Swi ze land
75
UK
603
Canada
109
Uni ed S a es
10,312
China excep Hong Kong
97
Hong Kong
26
Japan
86
Aus alia
12
O he
234
All o eign mul ina ionals
12,300
I ish i ms
3,024
To al
15,324
This shows ha he as bulk o co po a ion ax paid by o eign i ms is paid by
US MNEs. This con as s wi h he ac ha US MNEs, despi e paying high wages,
only accoun ed o 40 pe cen o wages paid by all o eign MNEs in I eland in
2021.
5. Conclusions
The Eu os a da a show ha US MNEs play a majo ole in he I ish economy,
much g ea e han in he EU as a whole. Table 7 summa ises he con ibu ion o
I ish ne na ional p oduc (NNP) o US i ms, h ough co po a ion ax and wages.
I also shows he con ibu ion o all o eign mul ina ionals.
TABLE 7 CONTRIBUTION TO IRISH NNP 2021, PERCENTAGE POINTS
US
To al
Co po a ion ax
6.0
7.1
Wage bill
8.4
21.4
To al
14.3
28.5
19 | Qua e ly economic commen a y – Win e 2024
Any changes in he coming yea s due o US o EU legisla ion, which a ec ed he
ole o US i ms in I eland, could, as a esul , ha e a big impac on he economy.
This Box was p epa ed by John Fi zge ald.
Global headwinds inc ease wi h US policy change
While i is no ed abo e ha he I ish economy is a isk om a numbe o channels
gi en a shi in US ade and iscal policy unde he o hcoming T ump
adminis a ion, hese headwinds ex end o he global economy as well. As no ed
abo e, I eland’s economy is small and highly globalised, which means ha any
educ ion in global g ow h will na u ally ha e an knock-on impac on I ish expo s.
In i s mos ecen economic Wo ld Economic Ou look, he In e na ional Mone a y
Fund (IMF) a emp ed o quan i y he impac o a ious policy changes and
unce ain ies on global g ow h. While hei headline g ow h a es had poin ed
owa ds an upg ade o he ou look ela i e o Ap il 2024 o ecas s on he back o
an imp o ed US economy, i p o ided scena ios o assess he downside isk o a
policy pi o owa ds p o ec ionism. The IMF baseline o ecas and scena ios a e
p esen ed in Figu e 12.
Thei i s scena io (A) es ed o he impac o a educ ion in ade ollowing a 10
pe cen a i imposed on ade lows among he EU, US and China, and a 10 pe
cen a i by he US on ade om he es o he wo ld. This would lead o a 0.1
pe cen educ ion in wo ld economic ou pu in 2025 and 2026, and a la ge impac
in 2027. A second scena io (B) explo es he impac on in es men o highe ade
unce ain y in he US and he eu ozone. Thi dly, hey apply a u he scena io wi h
lowe mig a ion lows, which again lowe s economic ou pu . Finally, hey laye on
he igh e inancial condi ions ha a e likely o occu i A, B and C ma e ialise. The
impac s o hese cumula i e e ec s a e no able, wi h g ow h dec easing om 3.2
pe cen in 2025 and 2026 o 2.5 and 2.1 pe cen espec i ely. Gi en he sensi i i y
o I ish ac i i y o wo ld g ow h, i is likely ha hese impac s would pass ully
h ough o he I ish economy, lowe ing he g ow h a e in he aded sec o s
subs an ially. Indeed, he scena io ha he IMF deploy is a 10 pe cen a i , which
may be on he benign side gi en ecen announcemen s om he T ump
adminis a ion. Howe e , i mus be acknowledged ha conside able unce ain y
su ounds he ex en o which he policies p oposed by he T ump campaign du ing
he US p esiden ial elec ion will acco d wi h he ac ual policy choices o he
incoming adminis a ion he e.
Domes ic and In e na ional Ou look | 26
model is es ima ed o e he pe iod 1981–2024 and he ac ual p ices and model-
based es ima es a e compa ed in Figu e 18 below.12
FIGURE 18 ACTUAL AND FITTED VALUES FROM THE HOUSE PRICE EQUATION: 2006–2024
Sou ce: Qua e ly Economic Commen a y es ima es.
F om he abo e igu e, i is clea ha he e appea ed o be signi ican unde -
alua ion in he I ish ma ke in he pe iod up o 2018. This was a all-ou om
he signi ican educ ion in p ices ha occu ed a e he global inancial c isis.
House p ices inc eased sha ply and pe sis en ly du ing his pe iod. F om 2018
h ough 2022, he housing ma ke was in equilib ium, wi h ac ual p ices and
hose sugges ed by he model being p ac ically he same. Howe e , a di e gence
has eme ged o e he pas 18 mon hs, wi h ac ual house p ices now somewha
la ge han hose sugges ed by he model.
In addi ion o he model-based es ima e, we also examine I ish house p ices
ela i e o end by applying a Hod ick–P esco (HP) il e . While no wi hou i s
limi a ions,13 he HP il e is a commonly used ool o es ablish he end o a
a iable o e ime, and is used ex ensi ely as pa o cen al banks’
coun e cyclical capi al bu e . The choice o smoo hing pa ame e , λ, is se a
400,000 in line wi h wo k such as D ehmann e al. (2010). Bo h he model and
il e -based es ima es o house p ice o e alua ion a e plo ed in Figu e 19.
Based on he mos ecen da a om Q2 2024, he igu e I ish house p ices a e
o e - alued by somewhe e in he egion o 8 o 10 pe cen .
11
See h ps://www. e.ie/news/business/2024/1016/1475774-house-p ices-analysis/ o example.
12
No e all mone a y a iables a e de la ed by he CPI.
13
As poin ed ou by Alessi and De ken (2014), he HP il e is sensi i e o he choice o he smoo hing pa ame e and
also su e s om endpoin bias.
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2006Q1 2008Q1 2010Q1 2012Q1 2014Q1 2016Q1 2018Q1 2020Q1 2022Q1 2024Q1
House p ices
Ac ual Model based

27 | Qua e ly economic commen a y – Win e 2024
FIGURE 19 ESTIMATES OF DISEQUILIBRIUM IN THE IRISH RESIDENTIAL MARKET, 2006–2024
Sou ce: Qua e ly Economic Commen a y es ima es.
As he abo e analysis clea ly shows some sign o house p ice o e alua ion, i is
p uden o moni o o he ulne abili ies ela ed o he I ish esiden ial eal
es a e ma ke . To do so, we ollow an app oach by Beng sson e al. (2017), who
analyse a se o indica o s ela ed o h ee dimensions o eal es a e sec o
ulne abili ies – alua ion, household indeb edness and he c edi cycle. Table
8 p o ides an o e iew o hese indica o s in he I ish con ex .
TABLE 8 INDICATORS RELATED TO RESIDENTIAL REAL ESTATE VULNERABILITY
INDICATORS
DESCRIPTION
SOURCE
VALUATION
P ice- o-income
(PTI)
Nominal house p ice/disposable
income
OECD – Analy ical house
p ice indica o s
P ice- o- en
(PTR)
Nominal house p ice/nominal en
OECD – Analy ical house
p ice indica o s
O e alua ion
(OVERVAL)
% De ia ion o ac ual house p ices
om model based equilib ium
CSO, Cen al Bank o I eland
and au ho s’ calcula ions
HOUSEHOLD INDEBTEDNESS
Household deb - o-disposable income
(DTI)
Ra io o household deb o disposable
income
Cen al Bank o I eland and
au ho s’ calcula ions
Deb Se ice Ra io o Households
(DSR)
Disposable income o mo gage
epaymen s
Cen al Bank o I eland and
au ho s’ calcula ions
Households deb o o al asse s
(DTA)
Ra io o household deb o household
o al inancial asse s
Cen al Bank o I eland and
au ho s’ calcula ions
CREDIT CYCLE
C edi o house pu chases
(CREDHP)
C edi o domes ic households o
house pu chases o GNI*
Cen al Bank o I eland, CSO
and au ho s’ calcula ions
Lending sp eads
(SPREAD)
Di e ence be ween lending a es o
house pu chases and money ma ke
a es
Cen al Bank o I eland,
Re ini i and au ho s’
calcula ions
Loan- o-deposi a io
(LTD)
Ra io o banks o al loans o o al
deposi s
Cen al Bank o I eland and
au ho s’ calcula ions
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
2006Q1 2008Q1 2010Q1 2012Q1 2014Q1 2016Q1 2018Q1 2020Q1 2022Q1 2024Q1
%
Model Based Fil e Based
Domes ic and In e na ional Ou look | 28
Figu es 20 and 21 p esen he se o indica o s ela ed o I ish eal es a e
ulne abili y in wo sepa a e ways. Figu e 20 examines he ulne abili ies a
h ee selec ed poin s in ime – Q4 2008, Q4 2016 and he mos ecen da a
a ailable o 2024 – in he o m o a ada cha . Figu e 21 looks a he e olu ion
o e he en i e 2003 o 2024 pe iod in he o m o a hea map.14 The da a ha e
been no malised, so ha a alue o 1 ep esen s he highes le el o ulne abili y
and a alue o 0 he lowes . Figu e 20 highligh s he signi ican le el o
ulne abili y in Q4 2008 ac oss all six indica o s ela ed o alua ion, household
indeb edness and he c edi cycle.
Figu e 20 also shows ha by Q4 2016, he ulne abili ies had educed
signi ican ly, wi h banks educing hei lending exposu es, o e alua ion in he
housing sec o dissipa ing ac oss he h ee di e en indica o s, and isks ela ed
o indeb edness eceding. In he mos ecen pe iod, a numbe o indica o s
appea o be showing signs o ulne abili y. This includes he o e alua ion o
p ope y p ices ela i e o undamen als, as desc ibed abo e. The o he wo
indica o s in his ca ego y, p ice- o-income (PTI) and p ice- o- en (PTR), a e also
abo e he le els seen in Q4 2016, bu s ill well below hose o Q4 2008. In
addi ion, he e would also appea o be a signi ican inc ease in ulne abili ies
ac oss single indica o s in he household indeb edness and c edi cycle
ca ego ies, namely in he DSR and he indica o ela ed o lending sp eads
(SPREAD). The ele a ed le el o ulne abili y is likely d i en solely by he highe
in e es a e en i onmen , howe e . This is isible in Figu e 21, which shows
ele a ed ulne abili y beginning in mid-2022. I is impo an o no e ha all
o he indica o s ac oss hese ca ego ies emain low and he ulne abili ies a e
likely o dissipa e as in e es a es all.
FIGURE 20 VULNERABILITY IN IRELAND’S RESIDENTIAL REAL ESTATE MARKET – Q4 2008, Q4 2016 AND
CURRENT
14
In he hea map, ed indica es he highes le el o ulne abili y while g een ep esen s he lowes .
0
0.2
0.4
0.6
0.8
1PTI
PTR
OVERVAL
DTI
DTADSR
CREDHP
SPREAD
LTD
2008Q4 2016Q4 Cu en
29 | Qua e ly economic commen a y – Win e 2024
FIGURE 21 VULNERABILITY IN IRELAND’S RESIDENTIAL REAL ESTATE MARKET – Q1 2003 – PRESENT
PTI PTR OVERVAL DTI DTA DSR CREDHP SPREAD LTD
2005
VALUATION
INDEBTEDNESS
CREDIT
2003
2004
2023
2024
2017
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2018
2019
2020
2021
2022
Sou ce: Qua e ly Economic Commen a y es ima es.
Conclusion
The accele a ed inc ease in house p ices expe ienced so a in 2024 has led o
conce ns in he domes ic ma ke abou he sus ainabili y o such inc eases and
he p ospec o a pain ul co ec ion such as ha wi nessed be ween 2007 and
2012. I is e iden ha an inc easing numbe o I ish households a e acing
ele a ed le e aged posi ions in e ms o he mo gaged deb s hey a e ca ying.
This ende s hese households qui e ulne able, pa icula ly o any labou
ma ke shock, bo h in e ms o a sudden ise in unemploymen and/o a decline
in eal wages. I also aises ques ion ma ks a ound he capabili y o ce ain
coho s o he popula ion o engage in homeowne ship, as bo h he DSR and
house p ice- o-income a io a e inc easing signi ican ly. While c edi g ow h is
no as signi ican a ac o as i was in he p e-Cel ic Tige e a, he e is ecen
e idence (Egan e al., 2024b) o sugges he g owing con ibu ion o ecen
house p ices o changes in he loan- o-income a io. Consequen ly, he Cen al
Bank o I eland mus be pa icula ly igilan and p uden in any e iew o he
mo gage measu es in i s mac op uden ial policy amewo k.
Domes ic and In e na ional Ou look | 30
Re e ences
Beng sson, E., M. G o he and E. Lepe s (2017). Home, sa e home: c oss-coun y
moni o ing amewo k o ulne abili ies in he esiden ial eal es a e
sec o , Wo king Pape Se ies 2096, Eu opean Cen al Bank.
Blancha d O. and W. Wa son (1982). ‘Bubbles, a ional expec a ions and
inancial ma ke s’, in P. Wach el (ed.) C ises in he economic and
inancial s uc u e, Lexing on Books, Lexing on, MA, pp. 295–316.
D ehmann, M., C. Bo io, L. Gambaco a, G. Jimenez and C. T ucha e (2010).
Coun e cyclical capi al bu e s: Explo ing op ions, BIS Wo king Pape
No. 317.
Egan P., K. McQuinn and C. O’Toole (2024a). ‘How supply and demand a ec
na ional house p ices: The case o I eland’, Jou nal o Housing
Economics. Vol. 65, Sep embe , 102006.
Egan P., K. McQuinn and C. O’Toole (2024b). ‘C edi and house p ices in he I ish
esiden ial ma ke ’, In e economics, Vol. 59, No. 5, pp. 293–300.
McQuinn, K. (2017). ‘I ish house p ices: Deja u all o e again?’, Special a icle,
Qua e ly Economic Commen a y, win e , Dublin: ESRI.
This box was p epa ed by Paul Egan and Kie an McQuinn.
INFLATION
The a e o in la ion in I eland has con inued o all, wi h he mos ecen Consume
P ice Index (CPI) in la ion igu e o Oc obe de ailing an annual a e o in la ion o
0.7 pe cen . The a e o g ow h o he Ha monised Index o Consume P ices (HICP)
index has allen e en u he , o 0.5 pe cen in No embe . HICP is lowe because
i excludes owne -occupied housing cos s, in pa icula mo gage in e es a es.
Figu e 22 shows he downwa d end in bo h measu es o in la ion.
31 | Qua e ly economic commen a y – Win e 2024
FIGURE 22 IRISH CPI AND HICP
Sou ce: Cen al S a is ics O ice and Eu os a .
The a e o in la ion in I eland is lowe han he EU a e age. Figu e 23 ou lines he
gap be ween he wo, which has opened o e he cou se o 2024. Mone a y policy
in he eu ozone will be se based on he a e age a e, which may esul in in e es
a es being se a a le el ha is di e en o he a e o in la ion in he I ish
economy.
Howe e , wi h ecen g ow h in house p ices as ou lined in Box B abo e by
McQuinn and Egan (2024), a mo e expansiona y eu ozone mone a y policy would
no necessa ily bene i he I ish housing ma ke . I would lowe he cos o inance
and inc ease, ce e is pa ibus, he demand o housing.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Jan-23
Feb-23
Ma -23
Ap -23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oc -23
No -23
Dec-23
Jan-24
Feb-24
Ma -24
Ap -24
May-24
Jun-24
Jul-24
Aug-24
Sep-24
Oc -24
No -24
I eland HICP I eland CPI

Domes ic and In e na ional Ou look | 32
FIGURE 23 IRISH HICP COMPARED WITH EURO AVERAGE
Sou ce: Cen al S a is ics O ice and Eu os a .
D i e s o CPI in la ion in I eland
In la ion has con inued o end downwa ds h ough he hi d qua e o 2024.
Figu e 24 p esen s de elopmen s in he con ibu ions o CPI in la ion by key
sec o s in 2023 and 2024. We can obse e h ee issues by compa ing he i s hal
o 2023, when in la ion was high, wi h he ecen low in la ion pe iod o 2024.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Jan-23
Feb-23
Ma -23
Ap -23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oc -23
No -23
Dec-23
Jan-24
Feb-24
Ma -24
Ap -24
May-24
Jun-24
Jul-24
Aug-24
Sep-24
Oc -24
No -24
I eland HICP Eu o a ea HICP
33 | Qua e ly economic commen a y – Win e 2024
FIGURE 24 WEIGHTED CPI DEVELOPMENT
Sou ce: Cen al S a is ics O ice and au ho s’ calcula ion.
Fi s , in la ion in he ‘ es au an s and ho els’ sec o has allen a a much slowe
a e han o he sec o s. No e ha he cha abo e p esen s he con ibu ion o he
di e en sec o s o he o e all a e. Each sec o has a a e o in la ion ha is
weigh ed and combined in o he headline a e plo ed by he dashed black line.
The ac ual a e o in la ion in he ‘ es au an s and ho els’ sec o a e aged 8 pe
cen in 2023. While i has allen o an a e age o 5 pe cen in 2024 o da e, i
emains he la ges con ibu o o in la ion in each mon h o he yea .
Second, in ea ly 2023 he ‘housing and ene gy’ sec o o he CPI was esponsible
o o e hal o o e all in la ion. This elemen is now expe iencing nega i e p ice
g ow h. The e e sal has been cen al o de elopmen s in o e all in la ion in
I eland, pa icula ly h ough second ound e ec s. Figu e 25 demons a es ha he
CPI has been d i en by lowe ene gy p ices, while housing cos s ha e con inued o
inc ease.
15
15
‘Housing’ consis s o en s, mo gage in e es , main enance and epai , and wa e supply. ‘Ene gy’ consis s o liquid
uels, elec ici y, solid uels and gas.
7.7%
8.6%
7.6%7.2%6.6% 6.1%5.9%
6.4%6.4%
5.0%
3.9%
4.6%4.1%
3.4%2.9%2.6%2.6%2.2%2.2% 1.7% 0.7%
0.7%
-2%
0%
2%
4%
6%
8%
10%
Food and non-alcoholic be e ages Alcoholic be e ages and obacco
Housing and ene gy Heal h
T anspo Rec ea ion and cul u e
Res au an s and ho els O he
CPI
Domes ic and In e na ional Ou look | 34
FIGURE 25 HOUSING AND ENERGY
Sou ce: Cen al S a is ics O ice and au ho s’ calcula ion.
Thi d, ends in p ice de elopmen s by sec o ha e ended o be qui e consis en
on a mon h o mon h basis, wi h he excep ion o he ‘ anspo ’ sec o , which
appea s o be mo e ola ile han he o he s. Fo example, he ‘ ec ea ion and
cul u e’, ‘heal h’ and ‘alcoholic be e ages and obacco’ sec o s ha e been qui e
consis en in con ibu ing small posi i e amoun s o o e all in la ion. ‘Housing and
ene gy’ and ‘ ood and non-alcoholic be e ages’ ha e declined o e ime bu he
decline has been g adual.
Figu e 26 highligh s de elopmen s in he a e o in la ion in he ‘ anspo ’ sec o .
The h ee mos hea ily weigh ed sub-componen s in his sec o a e pu chases o
mo o ca s, ai a es and ‘ uels and lub ican s o pe sonal anspo equipmen ’,
which consis s p ima ily o pe ol and diesel. Pu chases o mo o ca s ha e seen a
g adual decline in he a e o p ice inc eases bu ai a es and p ices o mo o uels
ha e been qui e ola ile.
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Jan-23
Feb-23
Ma -23
Ap -23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oc -23
No -23
Dec-23
Jan-24
Feb-24
Ma -24
Ap -24
May-24
Jun-24
Jul-24
Aug-24
Sep-24
Oc -24
Housing Ene gy CPI Housing and ene gy
35 | Qua e ly economic commen a y – Win e 2024
FIGURE 26 CPI INFLATION IN THE TRANSPORT SECTOR AND LARGEST SUB-COMPONENTS
Sou ce: Cen al S a is ics O ice and au ho s’ calcula ion.
Summa y
In la ion is ending downwa ds a a as e pace han p e iously expec ed. When
combined wi h expec ed g ow h in nominal wages, his means eal wages will g ow
o a g ea e deg ee. Falling ene gy p ices a e exe ing downwa d p essu e on he
a e o in la ion, while he ‘ es au an s and ho els’ sec o emains he la ges
con ibu o o I ish in la ion. I eland’s in la ion is lowe han he p e ailing
Eu opean a e o in la ion.
O e all, we expec CPI in la ion in 2024 o a e age a 2.1 pe cen and a 1 pe cen
in 2025.
-30%
-20%
-10%
0%
10%
20%
30%
40%
Jan-23
Feb-23
Ma -23
Ap -23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oc -23
No -23
Dec-23
Jan-24
Feb-24
Ma -24
Ap -24
May-24
Jun-24
Jul-24
Aug-24
Sep-24
Oc -24
T anspo
Mo o ca s
Fuels and lub ican s o pe sonal anspo equipmen
Passenge anspo by ai
Domes ic and In e na ional Ou look | 42
FIGURE 33 CORPORATION TAX RECEIPTS BY MONTH (€, THOUSANDS)
Sou ce: Depa men o Finance and au ho s’ calcula ions.
No e: ‘CJEU Oc No ’ e e s o an es ima e o he unds ecei ed in Oc obe and No embe esul ing om he CJEU judgemen .
2024 does no include igu es o Decembe .
Howe e , he ou look o u u e co po a ion ax eceip s is pa icula ly unce ain
gi en he likely s ance o he incoming US adminis a ion. Two policy dimensions
could a ec he I ish public inances. Fi s , he T ump campaign signalled i s
in en ion o esho e o he US p o i s a ising om in ellec ual p ope y ha is
loca ed in I eland. I his we e done, i could ha e a signi ican impac on u u e
co po a ion ax eceip s.
Second, agg essi e US ade policy could a ec decision making in la ge
mul ina ionals. I eland’s co po a ion ax eceip s a e hea ily dependen on a small
numbe o i ms. Figu e 34 p esen s co po a ion ax eceip s by sec o and
highligh s he exposu e o ICT manu ac u ing and pha ma manu ac u ing. In hese
sec o s, he e may be a highe isk o eloca ion because i ms wi h complex,
globalised manu ac u ing p ocesses could be liable o ansa lan ic a i s mo e
han once o a gi en p oduc .
-5,000,000
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
2020 2021 2022 2023 2024
Janua y Feb ua y Ma ch Ap il
May June July Augus
Sep embe Oc obe No embe CJEU es ima e Oc No
Decembe

43 | Qua e ly economic commen a y – Win e 2024
FIGURE 34 CORPORATION TAX BY SECTOR (€, MILLIONS)
Sou ce: Re enue Commissione Co po a e Tax Analysis, 2022–2024.
Headline and adjus ed su pluses
The unds esul ing om he CJEU judgemen also impac on he gene al
go e nmen balance (GGB). Table 9 p esen s ou o ecas o 2024 and 2025 o
he headline igu es, and an adjus ed balance o 2024 excluding he one-o
eceip o hese unds.
19
In he case o he adjus ed balance we sub ac he €14bn
om go e nmen e enues. This means ha he adjus ed GGB balance in 2024
would ha e been €9,418m o 1.9 pe cen o GDP, whe eas he ac ual, headline
igu e is €23,418m o 4.6 pe cen o GDP.
19
No e: This adjus ed su plus makes no commen on he wind all na u e o ecen co po a ion ax eceip s. I simply
adjus s o he unds ecei ed esul ing om he CJEU judgemen .
0
5,000
10,000
15,000
20,000
25,000
30,000
2021 2022 2023
Chemical and pha ma manu ac u ing ICT manu ac u ing
O he manu ac u ing In o ma ion and communica ion
Financial and insu ance Wholesale and e ail ade
Adminis a i e and suppo se ices O he
Domes ic and In e na ional Ou look | 44
TABLE 9 HEADLINE AND ADJUSTED GENERAL GOVERNMENT BALANCE (€, MILLIONS)
2024
2024 adjus ed
2025
Re enue
148,753
134,753
140,653
Taxes
116,793
113,150
106,083
Social con ibu ions
22,745
22,745
25,475
In es men income
2,005
2,005
1,965
O he
7,210
7,210
7,130
Expendi u e
125,335
125,335
131,290
Gene al go e nmen balance
€, million
23,418
9,418
9,363
% o GDP
4.6%
1.9%
1.8%
Con ibu ions o in es men unds
4,050
4,050
6,080
Sou ce: Au ho s’ calcula ions.
No e: We assume ha all o he CJEU unds will be ecei ed in 2024. We assume in line wi h Depa men o Finance
p ojec ions ha he e will be con ibu ions o in es men unds o €4.05bn in 2024 and €6.08bn in 2025, consis ing
o €4.08bn o he Fu u e I eland Fund and €2bn o he In as uc u e, Clima e and Na u e Fund.
Expendi u e
Budge 2025 ou lines inc eases in cu en and capi al spending in he yea ahead.
A Special A icle published wi h he Commen a y discusses he dis ibu ional e ec
o he ax, wel a e and expendi u e decisions aken in he Budge (Doo ley e al.,
2024). Capi al expendi u e is cu en ly g owing as e han cu en expendi u e,
likely e lec ing a ca ch-up pe iod ollowing low in es men in he yea s ollowing
he global inancial c isis. As a esul , capi al expendi u e is inc easing as a sha e o
o e all expendi u e (Figu e 35).
45 | Qua e ly economic commen a y – Win e 2024
FIGURE 35 GROSS VOTED CURRENT AND CAPITAL EXPENDITURE (€, MILLIONS)
Sou ce: Depa men o Public Expendi u e, NDP Deli e y and Re o m Da abank.
Inc eased capi al expendi u e aises he ques ion o whe e he expendi u e will be
di ec ed. Figu e 36 compa es he a eas in o which budge ed capi al expendi u e
o 2025 will be di ec ed wi h he equi alen igu es o ecen yea s. The le hand
panel highligh s he inc ease in capi al spending on housing. The igh hand panel
shows he pe cen age o capi al spending alloca ed o each a ea. The sha e o o al
capi al spending ha is spen on housing and he en i onmen will inc ease in 2025
ela i e o he a e age o e he las ou yea s.
0
20,000
40,000
60,000
80,000
100,000
120,000
2022 2023 2024 2025
Cu en Capi al
Domes ic and In e na ional Ou look | 46
FIGURE 36 GROSS VOTED CAPITAL EXPENDITURE BY DEPARTMENT (€, MILLIONS)
Sou ce: Depa men o Public Expendi u e, NDP Deli e y and Re o m Da abank.
In es men unds and p o-cyclical capi al expendi u e
Figu e 37 p esen s a long- e m pe spec i e on he a io o capi al expendi u e o
o al expendi u e. The ela i e p io i isa ion o capi al expendi u e has la gely
depended on he s eng h o he economy.
FIGURE 37 RATIO OF CAPITAL EXPENDITURE TO TOTAL GROSS VOTED EXPENDITURE
Sou ce: Depa men o Public Expendi u e, NDP Deli e y and Re o m Da abank and au ho s’ calcula ions.
P e ious edi ions o he Commen a y ha e welcomed he es ablishmen o wo
new s a e in es men unds in he hope ha he exis ence o such unds du ing
u u e down u ns will lead o public spending, in pa icula capi al spending, being
less p o-cyclical in u u e. In addi ion, he unds should mi iga e agains excessi e
public spending in ligh o he wind all na u e o ecen co po a ion ax eceip s.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2021 2022 2023 2024 2025
Educa ion Heal h T anspo
Housing En i onmen O he
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2021-2024 A e age 2025
Educa ion Heal h T anspo
Housing En i onmen O he
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
47 | Qua e ly economic commen a y – Win e 2024
Howe e , he ex en o which he in es men unds can mee hei s a ed goals
will la gely be de e mined by he e en ual size o he con ibu ions o he unds.
Figu e 38 p esen s he in ended con ibu ions o he unds.
20
Figu e 38 highligh s he gap be ween he ini ial con ibu ions made in 2023 and
2024, and he o al con ibu ions en isioned o e he li e ime o he unds. The
amoun cu en ly in he unds is less han he budge ed capi al expendi u e o
2025 alone. The long- e m success o he unds will be de e mined by he
commi men o u u e go e nmen s o pe sis wi h he ini ial commi men and he
abili y o he economy o con inue o gene a e go e nmen su pluses.
FIGURE 38 EVOLUTION OF INVESTMENT FUNDS (€, MILLIONS)
Sou ce: Au ho s’ calcula ions.
No e: Depa men o Finance p ojec ions used o con ibu ions o he Fu u e I eland Fund ou o 2030. Conse a i e
assump ion applied o no u he inc eases o he annual con ibu ion a e 2030.
Deb o ou pu a ios declining
As illus a ed in Figu e 39, he deb - o-ou pu a io has dec eased when measu ed
agains bo h GDP and GNI*. Bo h measu es o ou pu ha e been inc easing, while
g oss gene al go e nmen deb is o ecas o con inue o dec ease in o 2025.
In addi ion, he GGB has been in su plus in 2024 and will con inue o be so in 2025.
While he exis ence o his su plus is a ibu able o wind all co po a ion ax
eceip s, he e ec on he deb - o-ou pu a io is e iden .
20
This analysis is ocused on con ibu ions o he unds. I excludes e u n on in es men s made by he unds, o
po en ial d awdowns o he In as uc u e, Clima e and Na u e Fund be ween 2026 and 2030.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Fu u e I eland Fund
In as uc u e, Clima e and Na u e Fund
In as uc u e, Clima e and Na u e Fund (al eady commi ed)
Fu u e I eland Fund (al eady commi ed)

Domes ic and In e na ional Ou look | 48
FIGURE 39 DEBT-TO-OUTPUT RATIO TREND AND FORECAST
Sou ce: Cen al S a is ics O ice and au ho s’ calcula ions.
The Na ional T easu y Managemen Agency (NTMA) has s a ed ha I ish deb has
one o he longes weigh ed a e age ma u i ies o all Eu opean coun ies, wi h only
modes edemp ions expec ed in he sho e m.
21
They also poin ou ha I ish
bo owing was highe du ing he low in e es a e pe iod o 2014–2021 han i has
been in he highe in e es a e pe iod o 2022–2024.
Summa y
In summa y, while he unds ecei ed ollowing he CJEU judgemen will dis o he
o e all pic u e o 2024, he unde lying public inances appea o be obus . We
expec he obus heal h o he public inances o con inue in o 2025. The GBB is
o ecas ed o be 6.5 and 1.1 pe cen o GNI* du ing hese yea s. We expec his o
con ibu e o a educ ion in he deb - o-GNI* a io o 67.5 pe cen by he end o
2025.
21
NTMA (2024). ‘Ins i u ional in es o p esen a ion: Annual epo and inancial s a emen s’, Oc obe .
0
20
40
60
80
100
120
140
160
180
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Deb as % GDP Deb as % GNI*
49 | Qua e ly economic commen a y – Win e 2024
Gene al assessmen
Cu en expec ed ou look – Real income se o inc ease
As we app oach he end o he yea , he domes ic I ish economy looks se o
egis e ano he s ong pe o mance in 2024. While he unde lying economy
con inued o pe o m obus ly h oughou he yea , as deno ed by modi ied
domes ic demand (MDD), headline indica o s such as GDP indica ed nega i e
g ow h o mos o 2024. O e all we expec GDP o decline in 2024 as in es men
ou lows o R&D capi al and highe impo s ou weigh a eco e y in expo s. In
2024, we expec MDD o g ow by 3.2 pe cen wi h GDP dec easing by 1.1 pe cen .
The la es Nowcas es ima e in he Commen a y (see Egan and K en, 2024, o
de ails)
22
shows ha MDD is cu en ly g owing a 3 pe cen .
In 2025, mainly because o he an icipa ed decline in in la ion, eal incomes a e se
o g ow signi ican ly in he domes ic economy. Fu he mo e, we expec a ebound
in esiden ial cons uc ion ac i i y. Acco dingly, we belie e MDD will g ow a a
sligh ly ele a ed a e o 4.1 pe cen nex yea , wi h GDP inc easing by 4.5 pe cen .
This howe e is amed agains he backd op o a ‘business as usual’ se o ading
ela ionships in he global economy. Below we discuss he possible implica ions i
he incoming US adminis a ion we e o adop some o he policies p oposed
du ing he p esiden ial elec ion campaign he e.
Gi en he s ong pace o g ow h in he domes ic economy, he e a e now likely o
be 55,000 addi ional wo ke s employed in 2024 compa ed wi h 2023. In 2025 we
expec employmen in he economy o exceed 2.8 million o he i s ime in he
coun y’s his o y. We expec he unemploymen a e o all o 4.2 pe cen nex
yea .
Fo hcoming change o adminis a ion in he Uni ed S a es
As specula ed in he p e ious Commen a y, he e-elec ion o Donald T ump as
p esiden o he Uni ed S a es b ings wi h i conside able unce ain y, pa icula ly
in e ms o he mac oeconomic implica ions o some o he ade policies ha ha e
been p oposed. Fo example, he possible in oduc ion o ade a i s by he new
adminis a ion would likely p o oke e alia o y measu es om China and o he
coun ies, which would ha e di ec consequences o global ade and,
consequen ly, a small open economy such as ha o I eland.
A ela ed bu sepa a e possible impac o a second T ump p esidency on ou
domes ic economy could be is-à- is inwa d FDI in I eland by US companies. In a
box accompanying he Commen a y, Fi zge ald highligh s he signi ican ole in he
I ish economy played by US mul ina ionals in e ms o hei con ibu ions ia
22
See h ps://www.es i.ie/news/es i-nowcas .
Gene al Assessmen | 50
co po a ion ax and wages. Indeed, o e he pas numbe o yea s, he
Commen a y has s essed he signi ican con ibu ion o I ish economic g ow h
made by he ICT and pha maceu ical sec o s in pa icula .
Any changes o US ax legisla ion ha sees a majo esho ing o he US o p o i s
a ising om in ellec ual p ope y ha is loca ed in I eland could ha e a se ious
impac on I ish co po a ion ax e enue. Because o he impo ance o his e enue
o he I ish economy, such a shock could ha e a e y majo and las ing impac on
he economy and pa icula ly on he public inances. P e ious Commen a ies ha e
highligh ed he ulne abili y o co po a ion ax eceip s o a sudden all in he
‘wind all’ componen o his axa ion sou ce.
The subs an ial employmen in he domes ic pha maceu ical sec o could be
ad e sely a ec ed i p oduc ion we e shi ed o he US as a esul o inc eased
a i s. This is highligh ed by he high alue o expo s o pha maceu icals o he
US. Howe e , i simila a i s we e imposed in he EU on US expo s, he e could
be some inc ease in p oduc ion in I eland by he same i ms o supply a non-US
ma ke . This could pa ially, o e en ully, o se he e ec s o esho ing o
pha maceu ical p oduc ion o he US. Indeed, gi en he long- e m na u e o many
o he in es men s made by US pha maceu ical i ms in I eland, and mul i ude o
ac o s ha would ha e in o med hose in es men decisions (such as EU single
ma ke access), i is unclea as o how impac ul he change in policy di ec ion
could be in his sec o , in he sho and medium e m.
I is a guable ha employmen and wages in he IT and p o essional se ices sec o
would be less ulne able o inc eased ade ensions be ween he US and he EU
because mos o he se ices o US mul ina ionals in hese sec o s a e p o ided o
coun ies ou side he US. Howe e , hey could be exposed o policies ha a ge
US-owned companies, o example in Asia, e en hough he se ices being
p o ided globally a e sou ced om US i ms headqua e ed in I eland.
Budge 2025
The pape published wi h he Commen a y by Doo ley e al. (2024) ou lines he
cus oma y analysis o Budge 2025 by he ax, wel a e and pensions eam in he
Ins i u e.
Budge 2025 saw a subs an ial o e all o al expendi u e package o €10.5 billion.
The income ax measu es implemen ed include inc eases in he s anda d a e band
and ax c edi s, along wi h a educ ion in uni e sal social cha ge (USC) liabili ies.
Some o he wel a e measu es in oduced include inc eases in pe sonal a es o
paymen s o social wel a e schemes, wi h p opo iona e inc eases o quali ied
adul inc eases. Weekly paymen s o child dependan s ose and a new ‘Newbo n
Baby G an ’ o €280 was in oduced, along wi h inc ease in paymen s ecei ed by
ca e s. As well as Budge 2024, Budge 2025 wi nessed u he empo a y
51 | Qua e ly economic commen a y – Win e 2024
measu es aimed a assis ing wi h ongoing cos -o -li ing p essu es. Ene gy c edi s,
o example, we e implemen ed, al hough a a lowe a e han in 2024.
Doo ley e al. (2024) conclude ha he pe manen measu es in Budge 2025 a e
b oadly p og essi e, wi h households in he bo om quin ile o income expec ed o
see a mino inc ease in equi alised disposable income. When empo a y measu es
a e included, he b oadly p og essi e e ec o he pe manen measu es becomes
less clea . While households in he bo om decile o income see he la ges ela i e
ise in income o 0.5 pe cen , he emainde o he bo om hal o he income
dis ibu ion see ei he no signi ican change in income o , in he case o he hi d
decile, a educ ion in eal income o -0.4 pe cen .
Finally, Doo ley e al. (2024) no e ha , as wi h he measu es in Budge 2024, i is
e iden ha we e i no o he empo a y measu es in place, he a isk o po e y
a e o hese g oups would ha e isen mo e subs an ially in 2024 and 2025.
The e o e, ca e ul conside a ion mus be gi en o how he pe manen wel a e
sys em can be de eloped o ensu e ha when hese empo a y measu es a e
wi hd awn, lowe income g oups a e no pa icula ly a ec ed.
O e all, in he Budge he commi men o inc eased in es men and he u he
deploymen o esou ces o he in es men unds es ablished is welcome.
Howe e , he Budge did con ain measu es ha we e no pa icula ly well a ge ed
and appea o ha e been o e ly gene ous in na u e. Gi en he likely eme gence o
signi ican global ade unce ain y in 2025, he e is an e en g ea e equi emen
o he S a e’s inances o be p uden ly managed by any new go e nmen pu in
place. I is impe a i e ha he inc eased expendi u e enabled by he ela i ely
buoyan s a e o he go e nmen co e s mus be accompanied by a policy o
achie ing alue o money, and he e icien and e ec i e deli e y o la ge
in as uc u al p ojec s.
Also, gi en he scale o po en ially ad e se economic implica ions ha may occu
due o he incoming US adminis a ion, i would be p uden o pu some
con ingency plan in ope a ion. Fo example, i i becomes appa en ha he e is
going o be a signi ican impac on bo h mul ina ional ac i i y and co po a ion ax
eceip s in he domes ic economy o e he coming yea s, i may be necessa y o
e-app aise he spending commi men s o u u e yea s, which ha e been ag eed
o in Budge 2025.
House p ice de elopmen s
The Commen a y con ains a numbe o i ems on house p ice de elopmen s. This is
pa icula ly app op ia e gi en he accele a ion in house p ice in la ion h ough
2024.
Resea ch No e | 58
FIGURE 2 LABOUR SHARE USING GNI
Sou ces: AMECO da abase and au ho ’s calcula ions.
Va ious well-documen ed a emp s ha e been made o gene a e sa is ac o y
measu es o I ish na ional income. Modi ied GNI o GNI* emo es dep ecia ion on
in ellec ual p ope y and leased ai c a , as well as ne ac o income o
edomiciled PLCs. These co ec ions gene a e a measu e ha mo e accu a ely
cap u es he o al income a ailable o und consump ion o in es men in I eland.
FIGURE 3 LABOUR SHARE USING GNI* FOR IRELAND AND GNI FOR PEER GROUP
Sou ces: AMECO da abase, CSO na ional accoun s da abase and au ho ’s calcula ions.
Figu e 3 shows ha he I ish labou sha e is a mo e s able when GNI* is used as
0.35
0.4
0.45
0.5
0.55
0.6
0.65
0.7
1995
1996
1997
1998
1999
2000
2001
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2007
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Finland Ne he lands I eland Denma k Belgium Aus ia
0.45
0.5
0.55
0.6
0.65
0.7
1995
1996
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Finland Ne he lands I eland Denma k Belgium Aus ia

Resea ch No e | 59
he denomina o . The e is some limi ed e idence o a decline o e ime. On
a e age, he I ish labou sha e is b oadly simila o he labou sha e in he pee
g oup o Eu opean coun ies when GNI* is used o I eland and GNI o he pee
g oup, al hough i is mo e ola ile. Honohan (2021) desc ibes any such compa ison
be ween GNI* and GNI as ‘a c ude p ocedu e’, bu in his case i is a mo e
in o ma i e han he GNI compa ison p esen ed in Figu e 2.
The ola ili y o he I ish labou sha e compa ed wi h he pee g oup is no ewo hy.
This compa ison also highligh s he scale o he e ec o he 2008–2012 pe iod on
I ish na ional income and unde lines he impo ance o conside ing de elopmen s
in he labou sha e o e a longe pe iod o ime o ge a mo e accu a e es ima e o
he concep .
Fi zge ald (2020) a gues in a ou o using a measu e o ou pu ha is ne o
dep ecia ion because o he dis o iona y e ec s o dep ecia ion on he I ish
na ional accoun s. By excluding all dep ecia ion, I eland is di ec ly compa able wi h
o he coun ies. Figu e 4 p esen s he labou sha e using ne na ional income.
1
The e is an immedia ely appa en le el e ec o app oxima ely 10 pe cen o
mos coun ies, bu he dynamics o e ime a e simila o he labou sha e using
GNI*. In pa icula , he e is no sha p decline in he pos -2015 pe iod.
Schwellnus e al. (2017) a gue ha using a measu e o na ional income ne o
dep ecia ion o calcula e he labou sha e may be mo e app op ia e o
conside ing income dis ibu ion. This is because i is only income ne o capi al
consump ion ha is a ailable o compensa e wo ke s and capi al owne s.
Howe e , he a gues ha g oss measu es o na ional income should be used o
conside s uc u al ends because capi al consump ion displays coun e -cyclical
beha iou . So while he labou sha e p esen ed in Figu e 4 is in o ma i e when
conside ing income dis ibu ion, he compa ison abo e o GNI* wi h GNI is
p e e able o conside ing s uc u al ends.
1
Speci ically, Fi zge ald (2020) a gues in a ou o using ne na ional p oduc a ac o p ices as a measu e o ou pu .
The analysis in his Resea ch No e uses ne na ional income a ma ke p ices. The wo di e because ne na ional
income includes indi ec axes and subsidies.
Resea ch No e | 60
FIGURE 4 LABOUR SHARE USING NET NATIONAL INCOME
Sou ce: AMECO da abase and au ho ’s calcula ions.
3. IMPUTING THE LABOUR INCOME OF THE SELF-EMPLOYED
The nume a o o he labou sha e is a measu e o o al compensa ion paid o
labou . Na ional accoun s p o ide an agg ega e igu e o compensa ion paid o
employees. To al compensa ion paid o labou as a ac o o p oduc ion consis s
o his igu e and a measu e o labou compensa ion paid o he sel -employed.
𝑙𝑎𝑏𝑜𝑢𝑟_𝑖𝑛𝑐𝑜𝑚𝑒 =𝐶𝑂𝑀𝑃𝐸𝑀𝑃′𝐸𝐸+𝐿𝑎𝑏𝑜𝑢𝑟𝐶𝑂𝑀𝑃𝑆𝑒𝑙𝑓𝐸𝑀𝑃
Figu e 5 shows ha sel -employed wo ke s in I eland ha e consis en ly numbe ed
o e 300,000, accoun ing o be ween 14 and 20 pe cen o he wo k o ce.
Al hough he sha e o o al wo ke s who a e sel -employed is dec easing, he size
o he g oup unde lines he impo ance o accu a ely impu ing hei labou income.
0.5
0.55
0.6
0.65
0.7
0.75
0.8
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1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
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2013
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2015
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2017
2018
2019
2020
2021
2022
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Finland Ne he lands I eland Denma k Belgium Aus ia
(1)
Resea ch No e | 61
FIGURE 5 PROPORTION OF WORKERS WHO ARE EMPLOYEES
Sou ce: CSO Labou Fo ce Su ey.
Sel -employed income is eco ded as mixed income in he na ional accoun s. Some
o his income is a ibu able o he labou o he sel -employed and some o capi al
hey p o ide. Thei labou income should he e o e ake he ollowing o m, whe e
ϑ ∈ (0, 1):
𝐿𝑎𝑏𝑜𝑢𝑟𝐶𝑂𝑀𝑃𝑆𝑒𝑙𝑓𝐸𝑀𝑃 =𝜗∗𝑀𝑖𝑥𝑒𝑑_𝐼𝑛𝑐𝑜𝑚𝑒
In he igu es p esen ed in Sec ion 2, we apply a me hod sugges ed by Gollin (2002)
o impu e he labou income o sel -employed wo ke s. This me hod has he
ad an age ha i can be easily applied o all Eu opean coun ies and ha i is
sensi i e o he numbe o sel -employed wo ke s. This co ec ion assumes ha
o al compensa ion pe wo ke (ea nings) is he same o employees and he sel -
employed.
𝑙𝑎𝑏𝑜𝑢𝑟_𝑖𝑛𝑐𝑜𝑚𝑒_𝐴=𝐶𝑂𝑀𝑃_𝐸𝑀𝑃′𝐸𝐸+𝐿𝑆𝑒𝑙𝑓𝐸𝑀𝑃 ∗𝐶𝑂𝑀𝑃_𝐸𝑀𝑃′𝐸𝐸
𝐿𝐸𝑀𝑃′𝐸𝐸
Schwellnus e al. (2017) show ha while he e is no signi ican e ec a he a e age
le el, labou sha es in indi idual coun ies can be sensi i e o he me hod used o
impu e he wages o he sel -employed. The e o e, i we ocus on ends in he I ish
labou sha e a he han compa ing he le el wi h o he coun ies, i is impo an
o e alua e he app op ia eness o he di e en me hods p oposed. How should
he labou income o he sel -employed in I eland be impu ed?
78%
79%
80%
81%
82%
83%
84%
85%
86%
87%
0
500
1,000
1,500
2,000
2,500
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
% Employees
No. o wo ke s
Employees Sel -employed % Employees
(2)
(3)
Resea ch No e | 62
3.1 Equal hou ly wage o equal o al ea nings?
Ka aba bounis (2024) p oposes a numbe o di e en me hods o impu ing he
income o he sel -employed ha can be applied o US da a, one o which is easily
ans e able o Eu opean da a. This me hod uses an assump ion o equal
compensa ion pe hou (hou ly wage) be ween employees and he sel -employed.
𝑙𝑎𝑏𝑜𝑢𝑟_𝑖𝑛𝑐𝑜𝑚𝑒_𝐵 =𝐶𝑂𝑀𝑃_𝐸𝑀𝑃′𝐸𝐸+ 𝐻𝑊𝑆𝑒𝑙𝑓𝐸𝑀𝑃 ∗𝐶𝑂𝑀𝑃_𝐸𝑀𝑃′𝐸𝐸
𝐻𝑊𝐸𝑀𝑃′𝐸𝐸
Cho e al. (2017) ecommend impu ing he income o he sel -employed a a
sec o al le el. This is a sensible ecommenda ion in an I ish con ex because o he
wide sec o al a ia ion in he p opo ion o wo ke s who a e sel -employed, as
p esen ed in Figu e 6.
FIGURE 6 SECTORAL COMPOSITION OF EMPLOYMENT (2023)
P – Educa ion
Q – Human heal h and social wo k ac i i ies
K,L – Financial, insu ance and eal es a e
B–E – Indus y
I – Accommoda ion and ood se ice ac i i ies
G – Wholesale and e ail ade
H – T anspo and s o age
M – P o essional, scien i ic and echnical
ac i i ies
R–U – O he NACE ac i i ies
F – Cons uc ion
A – Ag icul u e, o es y and ishing
O – Public adminis a ion and de ence
Sou ce: CSO Labou Fo ce Su ey.
The O ganisa ion o Economic Co-ope a ion and De elopmen (OECD, 2024)
applies a sec o al app oach, which builds on Me hod B (4). They assume ha
compensa ion pe hou (wages) is he same o employees and he sel -employed
in each sec o . This gi es ise o he ollowing co ec ion o labou income, whe e
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
P Q K,l B-E I J G H M F R-U A O
Pe cen o o e all wo ke s
Sec o code
Sel -employed Employee
(4)
Resea ch No e | 63
he a e age compensa ion pe hou wo ked o employees in sec o i is mul iplied
by he amoun o hou s wo ked by he sel -employed in ha sec o :
𝑙𝑎𝑏𝑜𝑢𝑟_𝑖𝑛𝑐𝑜𝑚𝑒_𝐵𝑠𝑒𝑐𝑡𝑜𝑟𝑎𝑙 = 𝐶𝑂𝑀𝑃_𝐸𝑀𝑃′𝐸𝐸+∑𝐶𝑂𝑀𝑃_𝐸𝑀𝑃′𝐸𝐸𝑖
𝐻𝑊𝐸𝑀𝑃𝐸𝐸𝑖
𝑖∗ 𝐻𝑊𝑆𝑒𝑙𝑓𝐸𝑀𝑃 𝑖
Howe e , he unde lying assump ion is s ill one o equal hou ly wages.
The Na ional Economic and Social Council (NESC, 2020), in an analysis o da a om
EU Su ey on Income and Li ing Condi ions (EU-SILC) and he Household Budge
Su ey conduc ed by he Cen al S a is ics O ice (CSO), conclude ha income o
sel -employed indi iduals is 10 pe cen lowe han income o employees.
Howe e , hou s wo ked by he sel -employed a e age 20–30 pe cen highe han
hou s wo ked o employees. Taken oge he , his would sugges a subs an ial gap
in hou ly wages be ween employees and he sel -employed. The e o e, an
assump ion o equal ea nings a he han equal hou ly wages seems mo e
easonable, albei i is unlikely o be exac ly co ec .
Caswell (2024) applies he OECD sec o al e sion o Me hod B (5) o UK da a and
concludes ha an assump ion o equal hou ly wages ‘should be a oided unless
compelling empi ical e idence s a es o he wise’. He in okes iden i y (2) abo e o
show ha impu ed sel -employed income should no exceed he alue eco ded
o mixed income in he na ional accoun s, i.e. ha ϑ should no exceed 1. We will
apply his me hod as a check on applica ions o Me hods A, B and C o I ish da a.
We p opose an al e na i e me hod o impu ing he labou income o he sel -
employed. This me hod assumes equal ea nings in each sec o be ween employees
and he sel -employed. The e o e, Me hod C is equi alen o Me hod A bu applied
on a sec o -by-sec o basis.
𝑙𝑎𝑏𝑜𝑢𝑟_𝑖𝑛𝑐𝑜𝑚𝑒_𝐶 =𝐶𝑂𝑀𝑃+∑ 𝐶𝑂𝑀𝑃𝑖
𝐸𝑀𝑃𝐸𝐸𝑖
𝑖∗𝑆𝑒𝑙𝑓𝐸𝑀𝑃𝑖
Figu e 7 p esen s es ima ed impu ed labou income o he sel -employed based
on Me hods A, B and C. Me hod A (3) and Me hod C (6) bo h assume equal o al
ea nings, wi h Me hod C applying he assump ion a a sec o al le el. In he pe iod
be o e he global inancial c isis (GFC), he e is a signi ican di e ence be ween
Me hod A and Me hod C. The wo measu es con e ged o a pe iod, be o e
Me hod C g ew quicke in he pos -COVID-19 pe iod.
Me hod B (5), which assumes equal hou ly wages be ween he sel -employed and
employees, is consis en ly highe han Me hod A. This e lec s he issues ou lined
(5)
(6)

Resea ch No e | 64
abo e, wi h an assump ion o equal hou ly wages be ween employees and he sel -
employed.
FIGURE 7 IMPUTED TOTAL LABOUR INCOME FOR THE SELF-EMPLOYED BY METHOD (€, MILLION)
Sou ces: CSO na ional accoun s da abase, Labou Fo ce Su ey and au ho ’s calcula ions.
Figu e 8 p esen s he impu ed labou incomes o he sel -employed compa ed
wi h he igu e o g oss mixed income eco ded in he na ional accoun s.
2
In he
ea lie pa o he sample, Me hod 2 impu es a alue o he labou income o he
sel -employed ha is a la ge sha e o he o al g oss mixed income eco ded in he
na ional accoun s, implying a le el o 𝜗 close o 1. On he o he hand, Me hods A
and C impu e alues o he labou income o he sel -employed ha imply ha
a ound wo- hi ds o g oss mixed income is a ibu ed o labou .
Me hod B implies a alue o 𝜗 ha is close o 1 and an o e all labou sha e in he
ange o 0.55 o 0.65. This would sugges ha he p oduc ion echnologies used by
employees and he sel -employed a e s uc u ally di e en . Ka aba bounis (2024)
a gues agains such an assump ion, and in a ou o assuming equal ac o sha es
be ween he wo g oups. Me hod C achie es a esul ha is b oadly in line wi h
his assump ion. Using Me hod C, a ela i ely cons an p opo ion o g oss mixed
income is alloca ed o labou (𝜗 = 0.70 on a e age).
2
The mixed income se ies is a ailable om 2010 onwa ds om he CSO’s websi e: in ‘CSO Ins i u ional Sec o
Accoun s’, unde ‘G oss Ope a ing Su plus / Mixed Income o he Household sec o ’.
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Me hod A (equal ea nings) Me hod B (equal hou ly wage)
Me hod C (equal ea nings - sec o al)
Resea ch No e | 65
FIGURE 8 IMPUTED LABOUR INCOME FOR THE SELF-EMPLOYED BY METHOD WITH MIXED INCOME (€,
MILLION)
Sou ces: CSO na ional accoun s da abase, Labou Fo ce Su ey and au ho ’s calcula ions.
Me hod C achie es his esul wi hou di ec ly imposing an assump ion o 𝜗.
Di ec ly imposing an assump ion o 𝜗 would gene a e an impu ed alue o labou
compensa ion o he sel -employed ha does no ake accoun o he numbe o
sel -employed wo ke s. Caswell (2024) desc ibes such an assump ion as
‘somewha naï e’. This u he suppo s he use o Me hod C, which assumes equal
ea nings be ween he wo g oups a he sec o al le el.
Figu e 9 p esen s he labou sha e es ima ed using he h ee di e en me hods.
Following he discussion in Sec ion 2, we use GNI* as he denomina o . The h ee
me hods ha e con e ged o a ce ain deg ee in ecen yea s. As shown in Figu e 5,
he sha e o wo ke s who a e sel -employed has allen o e ime, so di e en
me hods o impu e hei labou income will a ec he o e all labou sha e less in
ecen yea s.
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Mixed income Me hod A (equal ea nings)
Me hod B (equal hou ly wage) Me hod C (equal ea nings - sec o al)
Resea ch No e | 66
FIGURE 9 LABOUR SHARE BY METHOD USING GNI*
Sou ces: CSO na ional accoun s da abase, he Na ional Fa m Su ey, he Labou Fo ce Su ey and au ho ’s calcula ions.
The GFC pe iod ep esen s a clea de ia ion om he end ega dless o he choice
o me hod. This may be indica i e o nominal igidi ies in he economy. Du ing he
ecessiona y pe iod, ou pu and income ell qui e quickly bu wages did no adjus
a he same speed. This con ibu ed o a highe han usual labou sha e du ing his
pe iod. This episode unde lines he impo ance o aking a long- e m pe spec i e
on he labou sha e.
4. SECTORAL ASSUMPTIONS
The new me hod p oposed add esses he di e ences ac oss sec o s in he sha e o
o al wo ke s who a e sel -employed. The e is also a subs an ial di e ence in
a e age employee ea nings ac oss sec o s. Figu e 10 highligh s hese di e ences,
which ansla e in o di e en assump ions in Me hod C o he ea nings o he sel -
employed by sec o .
0.45
0.5
0.55
0.6
0.65
0.7
Me hod A (equal ea nings) Me hod B (equal hou ly wage) Me hod C (equal ea nings - sec o al)
Resea ch No e | 67
FIGURE 10 AVERAGE EMPLOYEE COMPENSATION BY SECTOR
Sou ce: CSO Labou Fo ce Su ey.
‘Ag icul u e, o es y and ishing’ is an ou lie wi h espec o he p opo ion o
wo ke s who a e sel -employed. Figu e 6 abo e shows ha i is he only sec o
whe e sel -employed wo ke s make up he majo i y o o al wo ke s. In addi ion,
i is he la ges single NACE sec o o sel -employmen . This sugges s ha i
wa an s speci ic a en ion. Figu e 11 shows ha while he sha e o hose in sel -
employmen who wo k in ‘ag icul u e, o es y and ishing’ is declining, he
absolu e numbe emains sizeable (70,000 sel -employed).
0
10
20
30
40
50
60
70
80
90
100
1998-2007 2008-2017 2018-2023
A e age employee compensa ion (€, k)
Ag icul u e, o es y and ishing All sec o s
A s, en e ainmen and o he se ices Cons uc ion
Dis ibu ion, anspo , ho els and es au an s Financial, insu ance and eal es a e ac i i ies
Indus y (excl. cons uc ion) In o ma ion and communica ion
P o essional, admin and suppo se ices Public, educa ion and heal h
Special A icle | 74
1. INTRODUCTION
Budge 2025 se s ou an expendi u e package o €10.5 billion. This addi ional
expendi u e is comp ised o a package o once-o measu es wo h €2.2 billion, a
ne ax package o €1.4 billion and an expendi u e package o €6.9 billion.
In he con ex o declining in la ion, ising wages, and eco d le els o employmen
in I eland (McQuinn e al, 2024), iscal es ain was u ged by he I ish Fiscal
Ad iso y Council, among o he s, amid conce ns ha u he b eaches o he
Na ional Spending Rule could con ibu e o g owing unde lying de ici s, inc eased
consume p ices, and agili y in he case o u u e ecessions (I ish Fiscal Ad iso y
Council, 2024). Ne e heless, he Go e nmen has exceeded i s own 5% spending
ule wi h Budge 2025, ci ing he need o compensa e households o he ising
cos o li ing.
In his Special A icle, we examine he ax and wel a e measu es announced in
Budge 2025. We begin by ou lining and assessing he axa ion measu es in Sec ion
2, which is ollowed by an examina ion o he social wel a e measu es in Sec ion 3.
Sec ion 4 p esen s ou analysis o he dis ibu ional impac o he combined
measu es using SWITCH – he Economic and Social Resea ch Ins i u e (ESRI) ax
and bene i mic osimula ion model – and ITSim, he indi ec ax model join ly
de eloped by he ESRI and he Depa men o Finance. We also es ima e he
cumula i e impac o ax and wel a e e o ms announced o da e by he coali ion
go e nmen o e he pe iod 2021 o 2025. Sec ion 5 concludes.
2. TAXATION MEASURES
Table A1 in he appendix lis s he main axa ion measu es announced in Budge
2025, alongside he ull yea cos es ima ed by he Depa men o Finance.
2.1 Income ax
The income ax s anda d a e cu -o , he poin a which he highe income ax a e
o 40% begins o apply, ose by €2,000 o a single adul , om €42,000 o €44,000,
and by a p opo iona e amoun o ma ied couples and ci il pa ne s. This
ep esen s a ise o 4.8%, subs an ially ahead o o ecas p ice in la ion o 1.2% and
jus o e o ecas wage g ow h o 4.2%.
1
This amoun s o an e ec i e ax cu , as
hese c edi s a e wo h mo e o axpaye s in eal e ms and a lowe sha e o
ea nings will be exposed o he op 40% a e o ax.
1
See McQuinn e al. (2024) o p ice in la ion o ecas s and Depa men o Finance (2024) o wage in la ion o ecas s.

Special A icle | 75
Mos income ax c edi s ose in nominal e ms, and he p opo ional inc ease o
a ound 7% was subs an ially abo e bo h in la ion and wage o ecas s o 2025. This
again amoun s o an e ec i e ax cu as hese c edi s a e wo h mo e o axpaye s
in eal e ms.
The Uni e sal Social Cha ge (USC) h eshold o mo ing om he second o he
hi d band a e inc eased by 6.3% ( om €25,760 o €27,382). In addi ion, he a e
o he hi d income band dec eased om 4% o 3%. As a esul o hese changes,
mos USC paye s will bene i om a educ ion in hei liabili y.
2.2 Taxa ion and housing
The Go e nmen also announced a ange o ax measu es aimed a add essing
issues ela ing o housing. The income ax c edi o p i a e en e s, in oduced in
Budge 2023, was inc eased om a maximum o €750 o a maximum o €1,000 pe
pe son pe yea o hose eligible and li ing in unsuppo ed p i a e en al
accommoda ion. The c edi will bene i middle income households mos as
households need o ea n enough o incu a ax liabili y o bene i om he c edi .
The Mo gage In e es Tax C edi , in oduced on a empo a y basis in Budge 2024,
is being ex ended by one u he yea . This ax c edi is a ailable o homeowne s
wi h an ou s anding mo gage balance o be ween €80,000 and €500,000 a he
end o 2022. The elie is a ailable only o holde s o acke and a iable a e
mo gages, and amoun s o 20% o he inc eased in e es paid in 2024 compa ed
o 2022. This elie is capped a €1,250. Like he en al ax c edi , his elie will
mainly bene i middle- and highe -income households, as he e a e e y ew
households in he lowes wo- i hs o he income dis ibu ion wi h acke o
a iable a e mo gages (By ne e al., 2023).
The Minis e o Finance also announced an inc ease in he a e o he Vacan
Homes Tax, which will inc ease om i e o se en imes he basic a e o Local
P ope y Tax o he p ope y. This ax is a welcome supply side measu e and
among he ecommenda ions o he Commission on Taxa ion and Wel a e (2022).
2.3 Indi ec ax
The e was a well- lagged inc ease o he ca bon ax, which wen om €56 pe
onne o ca bon o €63.50 pe onne. Excise du ies on obacco p oduc s also
inc eased, amoun ing o an ex a €1 on a packe o 20 ciga e es. O he indi ec ax
measu es announced include he in oduc ion o excise on e-ciga e e p oduc s
and he es o a ion o he 13.5% VAT a e on gas and elec ici y om May 2025.
The 20% educ ion o public anspo a es i s in oduced on a empo a y basis
in 2022 was once again ex ended o he whole o 2025, hus main aining a es a
he cu en le el.
Special A icle | 76
3. SOCIAL WELFARE MEASURES
The Budge also included many changes o social wel a e pa ame e s alongside
se e al empo a y measu es aimed a cushioning household incomes om supply-
side d i en in la ion (Table A1 in he appendix).
As pa o he pe manen package, pe sonal a es o paymen o social wel a e
schemes we e inc eased by €12 pe week, wi h p opo iona e inc eases o
quali ied adul inc eases. Ma e ni y, Pa e ni y and Pa en ’s Bene i a es we e
inc eased by €15 pe week. Weekly paymen s o Child Suppo Paymen
(p e iously known as Inc ease o a Quali ied Child) inc eased by €4 o unde 12s
and by €8 o hose aged 12 and o e , and he Wo king Family Paymen income
limi s inc eased by €60 pe week. A new Newbo n Baby G an o €280 in addi ion
o he i s mon h o Child Bene i was in oduced o pa en s wi h child en bo n
on o a e 1 Decembe 2024. Fu he measu es we e in oduced o suppo ca e s.
The income dis ega d o Ca e ’s Allowance was inc eased o €625 o a single
pe son and €1,250 o couples, alongside a €150 inc ease in he Ca e ’s Suppo
G an . Ca e ’s Allowance has also been added o he lis o quali ying paymen s o
he Fuel Allowance. The highe income h eshold o he Fuel Allowance has been
ex ended o hose aged 66 and o e , and has been inc eased o €524 o a single
pe son and €1,048 o couples, which means mo e people will quali y. Fo mos
social wel a e ecipien s, hese inc eases a e ela i ely la ge han he o ecas
wage g ow h o 4.2% in 2025 (Depa men o Finance, 2024). Howe e , since
e i emen age paymen s end o be highe han wo king age paymen s in nominal
e ms, he undi e en ia ed €12 ise esul s in a lowe pe cen age inc ease o his
g oup.
The wel a e package in he Budge also included empo a y wel a e and uni e sal
paymen s o mi iga e an in la ion-induced s ain on household inances. The
uni e sal ene gy c edi s we e enewed his yea , as pa o he cos -o -li ing
measu es, payable in No embe 2024 and Janua y 2025. Howe e , he amoun
dec eased om €150 o €125 and he numbe o paymen s dec eased om h ee
o wo compa ed o 2024. This is a signi ican iscal ou lay, making up a ound one-
qua e o he empo a y cos o li ing expendi u e. Two double Child Bene i
paymen s will also be made in No embe and Decembe 2024. Addi ionally, one-
o lump sum paymen s o ecipien s o ce ain social wel a e bene i s we e
announced, wi h paymen occu ing du ing Decembe 2024. Those in eceip o
he Wo king Family Paymen , he Disabili y Allowance, he Ca e ’s Suppo G an ,
he Blind Pension and he In alidi y Pension will ecei e a €400 lump sum, while
hose in eceip o he Li ing Alone and Fuel Allowance will ecei e €200 and €300
espec i ely. A lump sum o €100 was also made o ecipien s o he Child Suppo
Paymen in No embe 2024. The usual ‘Ch is mas Bonus’ o ecipien s o long- e m
social wel a e paymen s was announced. The empo a y educ ion in he s uden
Special A icle | 77
con ibu ion ee o hi d le el s uden s, announced in Budge s 2023 and 2024, was
epea ed in Budge 2025.
4. DISTRIBUTIONAL IMPACT ANALYSIS
We use SWITCH – he ESRI’s ax bene i mic osimula ion model – and ITSim – an
indi ec ax mic osimula ion ool join ly de eloped by esea che s a he ESRI and
he Depa men o Finance – o assess he combined impac o axa ion and
wel a e policy changes on household income.
2
The ange o policy e o ms
modelled is de ailed in he appendix. SWITCH is linked o da a om he 2022
Su ey on Income and Li ing Condi ions (SILC), he p ima y sou ce o in o ma ion
on household incomes collec ed annually by he Cen al S a is ics O ice (CSO). The
da a is eweigh ed o be ep esen a i e o he 2022 popula ion (in e ms o
demog aphics, employmen , income and social wel a e) and up a ed o e lec
p ice and income g ow h be ween 2022 and he yea o analysis. The scale, dep h
and di e si y o his su ey allows i o p o ide an o e all pic u e o he impac o
he policy changes on I ish households, which canno be gained om selec ed
example cases. ITSim es ima es he indi ec axes (VAT and excise du ies, including
ca bon axes) paid by I ish households on he basis o hei epo ed expendi u e,
collec ed by he CSO’s na ionally ep esen a i e Household Budge Su ey (HBS) in
2015–2016.
3
Gi en he ange o empo a y and pe manen measu es announced as pa o
Budge 2025, we sepa a e base and e o m scena ios o es ima e he dis ibu ional
e ec o Budge 2025. These a e summa ised in Panel A o Table 1. Scena io 1
cap u es pe manen policy changes be ween 2024 and 2025, while Scena io 2
ou lines he e ec o changes o bo h pe manen and empo a y measu es
be ween 2024 and 2025.
We also se up a baseline and e o m scena io (Panel B o Table 1), which p esen s
a mo e medium- e m pic u e. In Scena io 3 we es ima e he e ec o pe manen
policy changes only, be ween 2020 and 2025, on he dis ibu ion o income
compa ed o a scena io in which 2020 policies we e pegged o wage g ow h.
In each case, we compa e o a scena io in which policy pa ame e s o he di ec ax
and wel a e sys em a e indexed in line wi h ac ual and/o o ecas wage g ow h
(Table 1). As a gued by Ba gain and Callan (2010) and Callan e al. (2019), his
p o ides a dis ibu ionally neu al benchma k agains which o assess policy
2
See Keane e al (2023) o a desc ip ion and alida ion o he SWITCH model.
3
Income a es a e up a ed o 2025 le els using ea nings indices. Expendi u es a e up a ed o 2025 le els using p ice
g ow h indices.
Special A icle | 78
e o ms. Fo he indi ec ax sys em, we index ou baseline scena io in line wi h
p ice g ow h, which is a mo e app op ia e indexa ion ac o o expendi u e.
A new ea u e o his yea ’s analysis is he inclusion o empo a y measu es in he
baseline o he scena io ha e alua es he dis ibu ional impac o bo h
pe manen and empo a y measu es. Go e nmen has now ex ended o epea ed
ce ain empo a y measu es o se e al consecu i e yea s, and households ha e
begun o depend on measu es labelled as empo a y. The e o e, he analysis
accoun s o he dis ibu ional impac s o he wi hd awal o educ ion o
empo a y measu es in Budge 2025.
We use SWITCH o calcula e households’ social wel a e en i lemen s, ax liabili ies
and ne incomes unde each sys em. ITSim calcula es households’ VAT and excise
liabili ies.
TABLE 1 SUMMARY OF BASELINE AND REFORM SCENARIOS
A: 2024–2025
B: 2020–2025
Scena io 1
Scena io 2
Scena io 3
Base
Re o m
Base
Re o m
Base
Re o m
Policy
2024
2025
2024
2025
2020
2025
Indexed o
2025
-
2025
-
2025
-
Indexa ion ac o di ec ax
and wel a e*
4.2%
-
4.2%
-
22.9%
-
Indexa ion ac o indi ec
ax*
1.2%
-
1.2%
-
21.4%
-
Tempo a y policies
included?**
No
Yes
No
Figu es
1, 3-6
2, 3-6
7
No es: * We use CSO da a on annualised qua e ly a e age weekly ea nings and he Depa men o Finance 2025 o ecas
o inc ease in compensa ion pe employee o index he di ec ax and wel a e sys em. We use CSO da a on CPI
g ow h un il 2024 and o ecas s om he ESRI’s Qua e ly Economic Commen a y o CPI g ow h in 2025 o index
he indi ec ax sys em.
** Tempo a y policy measu es in oduced in Budge 2024 (2025) o be paid a he end o 2023 (2024) and beginning
o 2025, e.g. ene gy c edi , double social wel a e paymen s, addi ional Fuel Allowance paymen s.
4.1 The dis ibu ional e ec o Budge 2025
4
Figu e 1 shows he dis ibu ional e ec o pe manen changes o indi ec axes,
di ec axes and wel a e announced as pa o Budge 2025, compa ed o a wage-
indexed 2024 policy sys em. This co esponds o Scena io 1 in Table 1.
4
As men ioned, e e ence o ‘Budge 2025’ measu es includes he planned inc ease in PRSI and in oduc ion o he
Pay-Rela ed Bene i scheme.
Special A icle | 79
While no pa o Budge 2025, i was announced in 2023 ha pay- ela ed social
insu ance (PRSI) a es will ise om Oc obe 2024 onwa ds o help und he
in oduc ion o he Pay-Rela ed Bene i scheme and ackle S a e Pension unding
p essu es.
5
Ou analysis he e o e includes he planned 0.1% PRSI ise o 2025 as
well as he mo e in 2025 o pay- ela ed bene i s.
6
As shown in Figu e 1, we es ima e ha households will expe ience a ise in eal
income o 0.5% on a e age in 2025 due o he pe manen measu es announced in
Budge 2025. The pe manen measu es a e b oadly p og essi e, wi h households
in he bo om quin ile o income expec ed o see an inc ease o a ound 0.9% o
equi alised disposable income, and hose in he op quin ile o see inc eases o
0.5%.
We also show he e ec o combined changes o he pe manen and empo a y
ax and wel a e sys ems in Figu e 2, co esponding o Scena io 2 in Table 1. When
accoun ing o empo a y measu es, he a e age household is es ima ed o see an
inc ease o jus 0.2% in hei equi alised disposable income. Fu he mo e, he
b oadly p og essi e e ec o he pe manen measu es seen in Figu e 1 becomes
less clea . While households in he bo om decile o income see he la ges ela i e
ise in income, o 0.5%, he emainde o he bo om hal o he income dis ibu ion
see ei he no signi ican change in income, o , in he case o he hi d decile, a
educ ion in eal income o 0.4%. This nega i e e ec is d i en by he concen a ion
o e i emen aged households and households wi h disabili ies in he hi d decile;
hese g oups a e mos signi ican ly impac ed by he pa ial wi hd awal o nominal
eezing o empo a y measu es.
By his measu e, Budge 2025 is nei he s ongly p og essi e no eg essi e: he
e ec o pe manen measu es is easonably p og essi e, al hough eal income
gains a e modes ac oss he boa d. When ac o ing in empo a y measu es, he
impac s o he budge a y package on eal incomes a e modes and don’ appea o
be p og essi e. This e ec is d i en by he pa ial wi hd awal o he ene gy c edi s
and he nominal eeze o mos o he empo a y measu es.
5
All PRSI a es a e se o inc ease by 0.1 pe cen age poin in 2024 and 2025, 0.15 pe cen age poin in 2026 and 2027
and 0.2 pe cen age poin in 2028 (Depa men o Social P o ec ion, 2023 (p ess elease),
h ps://www.go .ie/en/p ess- elease/022d7-minis e -humph eys-secu es-cabine -app o al- o -majo -social-wel a e-
e o ms/.
6
The Pay-Rela ed Bene i Scheme is se o be in oduced in Ma ch 2025. Those who quali y will ecei e 60% o hei
p e ious ea nings o he i s h ee mon hs o unemploymen , d opping o 55% o he nex h ee mon hs and 50%
o he h ee mon hs ollowing ha (six h o nin h mon h o unemploymen ). These a es a e subjec o maximum
le els.

Special A icle | 80
FIGURE 1 DISTRIBUTIONAL IMPACT OF PERMANENT BUDGET 2025 COMPARED TO INDEXED 2024
POLICIES
Sou ce: Au ho s’ calcula ions using ITSim linked o he 2015–2016 Household Budge Su ey up a ed o 2025 p ices, and
SWITCH un on 2022 Su ey on Income and Li ing Condi ions da a, up a ed o 2025 income le els.
No es: Deciles a e based on equi alised household income, using CSO na ional equi alence scales.
FIGURE 2 DISTRIBUTIONAL IMPACT OF PERMANENT AND TEMPORARY BUDGET 2025 COMPARED TO
INDEXED 2024 POLICIES
Sou ce: Au ho s’ calcula ions using ITSim linked o he 2015–2016 Household Budge Su ey up a ed o 2025 p ices, and
SWITCH un on 2022 Su ey on Income and Li ing Condi ions da a, up a ed o 2025 income le els.
No es: Deciles a e based on equi alised household income, using CSO na ional equi alence scales.
4.2 The e ec o Budge 2025 by household ype, gende and disabili y s a us
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Decile 1 Decile 2 Decile 3 Decile 4 Decile 5 Decile 6 Decile 7 Decile 8 Decile 9 Decile 10 All
% change in disposable income
Decile o equi alised disposable income
Di ec ax and wel a e Indi ec ax To al
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Decile 1 Decile 2 Decile 3 Decile 4 Decile 5 Decile 6 Decile 7 Decile 8 Decile 9 Decile 10 All
% change in disposable income
Decile o equi alised disposable income
Di ec ax and wel a e Indi ec ax To al
Special A icle | 81
We u he examine he dis ibu ional impac o Budge 2025 by household ype,
gende and disabili y s a us. Figu e 3 displays he impac o di ec ax and wel a e
measu es and indi ec ax policies o Budge 2025 by household ype.
On a e age, mos household ypes bene i om he pe manen measu es in
Budge 2025, especially wo king age couples wi hou child en and lone pa en
households as hey a e gaining om he income ax/USC measu es and wel a e
inc eases ha a e abo e wage in la ion. Re i emen aged households we e leas
likely o bene i om he pe manen measu es in Budge 2025, wi h single
e i emen aged households expe iencing a ma ginal decline in eal disposable
income and e i emen aged couples seeing an inc ease o 0.1%. This is due o wo
ac o s. The €12 inc ease in S a e Pension a es o his g oup ep esen s a smalle
pe cen age gain han inc eases o wo king age wel a e paymen s. Secondly,
addi ional bene i s o en ecei ed by his g oup – such as he Li ing Alone
Allowance and he Fuel Allowance – we e ozen in nominal e ms, ep esen ing a
eal decline in alue.
When conside ing bo h he pe manen and empo a y changes o he ax and
wel a e sys em announced in Budge 2025, he dis ibu ion o gains and losses is
mo e une en ac oss household ypes. On a e age, e i emen aged households
expe ience losses, while wo king aged households see gains, pa icula ly
households wi h child en. The esul s o households wi h child en a e d i en by
he wo double Child Bene i paymen , inc eases in he Child Suppo Paymen s
and he in oduc ion o he Newbo n Baby Bonus. The pa e n o e i ed
households e lec s he wi hd awal o empo a y measu es, such as he educ ion
in ene gy c edi – highligh ing he impo ance o hese measu es o such g oups.
Special A icle | 82
FIGURE 3 DISTRIBUTIONAL IMPACT OF BUDGET 2025 BY HOUSEHOLD TYPE COMPARED TO INDEXED 2024
POLICIES
Sou ce: Au ho s’ calcula ions using ITSim linked o he 2015–2016 Household Budge Su ey up a ed o 2025 p ices, and
SWITCH un on 2022 Su ey on Income and Li ing Condi ions da a, up a ed o 2025 income le els.
Figu e 4 shows he es ima ed e ec s o di ec ax and wel a e policy changes om
Budge 2025 by gende .
7
Fo his analysis, we assume ha income is spli e enly
be ween indi iduals in a couple. Compa ed o a wage-adjus ed budge , ou analysis
sugges s ha Budge 2025 measu es a ec ed men and women in a b oadly simila
manne , wi h women in he bo om quin iles o income seeing la ge gains because
o bo h pe manen and empo a y policies, likely a e lec ion o bene i eceip
pa e ns and he highe Child Suppo Paymen s, and double Child Bene i paymen
implemen ed in Budge 2025.
7
I is no possible o es ima e he gende impac o indi ec ax changes using ITSim as expendi u e da a a e collec ed
a he household le el.
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
Single wo king-
age wi hou
child en
Lone pa en Wo king-age
couple wi hou
child en
Wo king-age
couple wi h
child en
Single
e i emen -age
(>= 66)
Re i emen -age
couple (a leas
one >=66)
All
% change in disposable income
Pe manen Pe manen + empo a y
Special A icle | 83
FIGURE 4 DISTRIBUTIONAL IMPACT OF BUDGET 2025 BY GENDER COMPARED TO A WAGE INDEXED 2024
POLICY
Sou ce: Au ho s’ calcula ions using SWITCH un on 2022 Su ey on Income and Li ing Condi ions da a, up a ed o 2025
income le els.
No es: Income is assumed o be ully sha ed be ween membe s o a couple. Quin iles a e based on equi alised household
income, using CSO na ional equi alence scales.
Figu e 5 shows he es ima ed e ec s o he Budge 2025 di ec ax and wel a e
measu es by disabili y s a us.
8
,
9
We iden i y households wi h disabili ies as hose
in which he e is a leas one membe who sel -decla es o ha e a medical
condi ion ha limi s hem in hei daily ac i i ies. O e all, pe manen measu es
we e es ima ed o ha e b oadly simila impac s on households wi h and wi hou
disabili ies. Howe e , households wi h disabili ies gained mo e a he bo om end
o he dis ibu ion.
When addi ionally conside ing empo a y measu es, on a e age, households wi h
disabili ies expe ienced smalle gains compa ed o households wi hou disabili ies.
This is la gely d i en by a nega i e impac on households wi h disabili ies in quin ile
2. Households in his quin ile, many o whom a e o e i emen age, a e mo e
elian on empo a y measu es, such as ene gy c edi s, which we e educed in
Budge 2025.
8
ITSim does no cu en ly allow he es ima ion o indi ec axa ion measu es by disabili y s a us.
9
The p ecise de ini ion we employ in he SILC da a is o iden i y as ha ing a disabili y hose who espond posi i ely o
he ollowing wo ques ions:
Do you ha e any ch onic physical o men al heal h p oblem, illness o disabili y?
A e you hampe ed [limi ed] in you daily ac i i ies by his physical o men al heal h p oblem, illness o disabili y?
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Quin ile
1
Quin ile
2
Quin ile
3
Quin ile
4
Quin ile
5
All
Pe manen
Men Women
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Quin ile
1
Quin ile
2
Quin ile
3
Quin ile
4
Quin ile
5
All
Pe manen + empo a y
Men Women
Special A icle | 90
APPENDIX
TABLE A1 REFORMS MODELLED IN DISTRIBUTIONAL ANALYSIS
Taxa ion
Full yea cos /yield,
€m
Modelled
Income ax
-1,290
€125 inc ease o Pe sonal, Employee, and Ea ned Income
Tax C edi s; €150 inc ease o Home Ca e and Single Pe son
Child Ca e Tax C edi s; ise in s anda d a e cu o by
€2,000.
✔
€300 inc ease in he Incapaci a ed Child Tax C edi and Blind
Pe son’s Tax C edi , €60 inc ease in he Dependen Rela i e
Tax C edi .
Uni e sal Social Cha ge
USC second band inc ease om €25,760 o €27,382, USC 4%
a e educed o 3%
-540
✔
Housing
Help o Buy amendmen s and ex ension o 31 Dec 2029
-185
Inc ease Ren Tax C edi o €1,000
-65
✔
Tax elie on p e-le ing expenses ex ended o 31 Dec 2027
-2
Inc ease s amp du y on bulk home pu chases om 10% o
15%
11.6
Inc ease acan homes ax o 7 imes LPT cha ge
1
Ca bon ax
+€7.50 pe onne o ca bon
157
✔
Excise du ies
+€1 on a packe o 20 ciga e es
69.7
✔
In oduced e-liquid ax o €0.50 pe ml
17
VAT
VAT educ ion on hea pumps o 9%
-4
Once-o cos -o -li ing measu es
Ex end mo gage in e es ax elie o one u he yea
-40
Ex ension o 9% VAT a e o gas and elec ici y o 3 Ap 25
-110
✔
Ren Tax C edi Inc ease o 2024
-65
✔
Inhe i ance ax
Th esholds o capi al acquisi ions ax inc eased
-88

Special A icle | 91
TABLE A1 (CONTD.) REFORMS MODELLED IN DISTRIBUTIONAL ANALYSIS
Wel a e
Full yea
cos /yield, €m
Modelled
Gene al
919.6
+€12 (unde 66) wel a e paymen s, p opo iona e inc ease
o quali ied adul s
✔
+€12 (o e 66) wel a e paymen s, p opo iona e inc eases
quali ied o adul s
✔
+€15 pa en al bene i s11
✔
Child Suppo Paymen
+€4 o quali ied child <12 yea s
+€8 o quali ied child >12 yea s
78.5
✔
Wo king Family Paymen
+€60 pe week o income h esholds
14.8
✔
Ca e s
Ca e ’s Allowance becomes quali ying paymen o Fuel
Allowance
3.7
✔
Ca e ’s Suppo G an inc eased om €1,850 o €2,000
25.4
✔
Ca e ’s Bene i ex ended o sel -employed
7.3
Inc ease in income dis ega d o Ca e ’s Allowance o €625
o singles (€1,250 o couples)
11.8
✔
Domicilia y Ca e Allowance inc eased by €20 pe mon h
15.9
Child Bene i
Newbo n Baby G an o €280
15
✔
Miscellaneous
Means es o ecipien s o S a e Pension (non-
con ibu o y), Disabili y Allowance and Blind Pension –
amoun no conside ed om sale o home upon mo ing in o
ca e inc eased om €190,500 o €337,500
0.2
✔
F ee School Books Scheme ex ended o Lea ing Ce i ica e
om Sep 2025
51
✔
Ex ension o Ho School Meals o all p ima y schools om
Ap 2025
72
✔
Pay- ela ed Jobseeke ’s Bene i om Ma 2025
*
F ee T a el Scheme Companion pass ex ended o all people
o e 70
7
F ee anspo ex ended o 5–8-yea -olds
*
Fuel Allowance means es age c i e ia educed om 70 o
66; income dis ega d inc eased o €524 o a single pe son
and €1,048 o a couple
4.8
✔
Once-o cos -o -li ing measu es
2x €125 household ene gy c edi s
500
✔
11
Modelled o Ma e ni y Bene i s only.
Special A icle | 92
TABLE A1 (CONTD.) REFORMS MODELLED IN DISTRIBUTIONAL ANALYSIS
Wel a e
Full yea
cos /yield, €m
Modelled
Fuel Allowance €300 lump sum
126
✔
Child Bene i double mon h x 2
371
✔
Social P o ec ion – au umn double week
350
✔
Li ing Alone Allowance €200 lump sum
50
✔
Wo king Family Paymen €400 lump sum
18
✔
Disabili y Allowance, Ca e 's Suppo G an , In alidi y
Pension €400 lump sum
143
✔
Blind Pension, Domicilia y Allowance €400 lump sum
€100 lump sum o Inc ease o a Quali ied Child ecipien s
34
✔
Fos e Ca e Allowance double paymen
2
€1,000 educ ion in s uden con ibu ion ee, 33% educ ion
in con ibu ion ee o app en ices. €1,000 inc ease in Pos
G adua e Tui ion ee con ibu ion.
98
✔
Addi ional unding o S uden Assis ance Fund
18
Fee educ ion on School T anspo Scheme, S a e Exam Fee
wai e , Addi ional Schools Capi a ion and o he measu es
120
Sou ce: Depa men o Finance’s Budge 2025 expendi u e epo and Budge 2025 ax policy changes.
No es: Cos s a e in millions o eu os pe annum and a e mos ly ull yea cos s o 2024. Some small schemes a e excluded. As e isk (*)
indica es no cos ing was a ailable.
TABLE A2 SIMULATED INCOME INEQUALITY AND AROP RATES IN 2025 WITH AND WITHOUT TEMPORARY
MEASURES
Inequali y/po e y
Indexed
2024
pe manen
Budge 2025
pe manen
Indexed 2024
Pe manen +
empo a y
Budge 2025
Pe manen +
empo a y
Gini index
0.272
0.271
0.266
0.266
AROP a e
Adul
0.121
0.119
0.117
0.116
Re i emen age
0.159
0.178
0.088
0.130
Child
0.156
0.154
0.150
0.145
Disabili y
0.229
0.238
0.187
0.209
Sou ce: Au ho s’ calcula ions using SWITCH un on 2022 Su ey on Income and Li ing Condi ions da a, up a ed o 2025
income le els.
No es: The po e y a e is calcula ed based on a po e y line equal o 60% o median equi alised disposable income. The
CSO equi alence scale is used. Wo king age de ined as aged 18-65 and child en as hose unde age 18. People wi h
disabili ies a e iden i ied as hose who sel - epo o ha ing an illness o disabili y ha limi s hem in hei daily
ac i i ies.
This A icle has been accep ed o publica ion by he Ins i u e, which does no i sel ake ins i u ional
policy posi ions. Special A icles a e subjec o e e eeing p io o publica ion. The au ho s a e solely
esponsible o he con en and he iews exp essed.
ESRI SPECIAL ARTICLE
ASSESSING EXPECTATIONS OF EUROPEAN HOUSE PRICES
Akhilesh Kuma Ve ma and Kie an McQuinn
A ailable o download om www.es i.ie
h ps://doi.o g/10.26504/qec2024win_sa_ e ma
© 2024 The Economic and Social Resea ch Ins i u e
Whi ake Squa e, Si John Roge son’s Quay, Dublin 2
This Open Access wo k is licensed unde a C ea i e Commons A ibu ion 4.0 In e na ional License
(h ps://c ea i ecommons.o g/licenses/by/4.0/), which pe mi s un es ic ed use, dis ibu ion and
ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly c edi ed.
Special A icle | 94
THE AUTHORS
Akhilesh Kuma Ve ma is a Pos doc o al Resea ch Fellow a he Economic and
Social Resea ch Ins i u e (ESRI). Kie an McQuinn is a Resea ch P o esso a he ESRI
and an Adjunc P o esso a T ini y College Dublin.
KEYWORDS
House p ices; o ecas ing bias; undamen al a iables
JEL CODES
D84, G12, R21
Special A icle | 95
ABSTRACT
Using a new da abase o consume s’ expec a ions, his pape examines he na u e
o house p ice o ecas s ac oss a selec sample o Eu opean Union (EU) membe
s a es o he pe iod 2020 o 2024. Ac oss many EU coun ies, pos COVID-19,
house p ice inc eases ha e been appa en . The e o e, unde s anding he dynamics
o house p ice mo emen s is especially impo an a his ime. In pa icula , we
examine he a ionali y o o he wise o consume s’ house p ice expec a ions, and
hen examine he ela ionship be ween he expec a ions and o ecas s o key
undamen al de e minan s o house p ices, such as in e es a es and income
le els. In his way we dis inguish ou wo k om mos o he s udies o house p ice
o ecas s, which ha e no examined links be ween house p ice o ecas s
hemsel es and o ecas s o he a iables ypically assumed o be de e mining
p ices. This is pa icula ly ele an as o en imes house p ice expec a ions
hemsel es a e in luenced by changes in ma ke undamen als.

Special A icle | 96
1. INTRODUCTION
One o he economic legacies o COVID-19, obse ed ac oss di e en coun ies, is
an accele a ion in house p ice in la ion. Acco ding o he In e na ional Mone a y
Fund’s (IMF) Global House P ice Index,
1
o he o e 60 coun ies pa icipa ing in
he su ey, h ee-qua e s wi nessed inc eases in p ices in 2020 wi h he end
con inuing in o 2021. Indeed, house p ices inc eased by o e 5 pe cen o 23
coun ies o he 60. On a c oss-coun y basis, house p ices ha e no expe ienced
such a sus ained inc ease since he pe iod p eceding he global inancial c isis (GFC)
o 2007–2008. Some o his inc ease may ha e been due o he accumula ion in
sa ings e iden among households ac oss Eu opean coun ies. Fi zge ald e al.
(2021), o example, no e ha when Eu opean consume s we e simila ly a ioned
du ing he Second Wo ld Wa , excess sa ings we e subsequen ly con e ed in o
physical asse s in he housing ma ke .
Consequen ly, gi en he p ominen ole o he housing ma ke in c edi and asse
p ice cycles, as well as he link be ween housing inance and he 2007–2009 GFC
(B unne meie , 2009; Duca e al., 2010 and 2011), assessing he sus ainabili y o
cu en house p ice mo emen s is o acu e in e es om a policymake ’s
pe spec i e.
Typically, he housing li e a u e assumes ha , in he long un, house p ices a e
de e mined by mo emen s in key undamen al a iables; o example, a s anda d
app oach in he li e a u e is o adop an in e ed housing demand unc ion such
ha he dependen a iable is he house p ice, as opposed o he quan i y o
houses. Applica ions can be ound in Peek and Wilcox (1991), Muellbaue and
Mu phy (1997), Meen (1996), Meen (2000), Came on e al. (2006), Kelly and
McQuinn (2014) and C onin and McQuinn (2021a); in all hese, he model gene ally
assumes ha house p ices a e posi i ely ela ed o income le els and nega i ely
ela ed o he cos o capi al.
2
The in e ela ionship be ween he housing ma ke and he eal economy was
pa icula ly e iden ollowing he GFC in 2007–2008. A obus housing ma ke
o en signals a s ong economy, as inc eased home sales and ising p ope y alues
boos consume weal h, leading o highe consume spending and in es men .
This, in u n, s imula es economic g ow h h ough inc eased demand o goods and
se ices, cons uc ion, and ela ed indus ies. Con e sely, a down u n in he
housing ma ke can ha e a ipple e ec , leading o dec eased consume
con idence and spending, educed cons uc ion ac i i y, and po en ial job losses,
he eby slowing economic g ow h. Addi ionally, housing p ices and a ailabili y
1
See h ps://blogs.im .o g/2021/10/18/housing-p ices-con inue- o-soa -in-many-coun ies-a ound- he-wo ld/.
2
House p ices a e also gene ally assumed o be nega i ely ela ed o he pe capi a housing s ock.
Special A icle | 97
impac a o dabili y and mobili y, in luencing labou ma ke dynamics and o e all
economic p oduc i i y. Case e al. (2005), o example, ind ha inc eases in
housing weal h signi ican ly boos consume spending, mo e so han inc eases in
s ock ma ke weal h, while Leame (2007; 2015) a gues ha housing is a leading
indica o o business cycles, wi h down u ns in esiden ial in es men o en
p eceding b oade economic ecessions. The cons uc ion sec o , which is closely
ied o housing in es men , gene a es signi ican employmen and d i es demand
o ma e ials and se ices, hus magni ying i s impac on he economy. Mian and
Su i (2009) demons a e how housing ma ke collapses can lead o se e e banking
c ises, as alling home p ices educe colla e al alues, leading o a c edi c unch.
They emphasise he ole o excessi e mo gage lending and inancial le e age in
exace ba ing economic down u ns.
While inc eases in house p ices can ini ially a ise due o a pa icula shock o
change in a key economic a iable, consume expec a ions o u u e p ice
mo emen s can hemsel es become an impo an dynamic in he ma ke . As no ed
by Duca e al. (2021), house p ice booms a e usually:
se in mo ion by shi s in undamen als (e.g. in in e es a es, income
and c edi s anda ds) whose dynamic e ec s in e ac wi h supply
condi ions and can be magni ied by a endency o households o o m
house p ice expec a ions ha a e e y di e en om he a ional
expec a ions associa ed wi h e icien ma ke s.
The e o e, he in e ac ion o house p ice expec a ions and he undamen al
de e minan s o house p ices is o pa icula in e es – i.e., o wha ex en a e
consume s’ expec a ions o house p ices linked o o associa ed wi h hei
expec a ions o he key de e minan s o house p ices? To da e, howe e , his
ela ionship does no appea o ha e been examined in much de ail. Much o he
li e a u e is conce ned wi h examining he a ionali y o o he wise o house p ice
o ecas s, and when his hypo hesis is usually ejec ed, o he dynamics
unde pinning house p ice expec a ions a e conside ed, such as backwa d looking,
ex apola i e ones. Few, i any, s udies examine he deg ee o which house p ice
expec a ions a e in luenced by consume s’ expec a ions o key unde lying
undamen al a iables, such as income le els and in e es a es. Using new su ey
da a on consume sen imen ega ding his issue, which was colla ed and
published by he Eu opean Cen al Bank (ECB)
3
, we now add ess his issue. Among
o he a iables, he ECB su ey publishes consume s’ expec a ions o house
p ices, household income and mo gage in e es a es. This allows us o compa e
he o ecas e o s o house p ices wi h hose o he key undamen al
3
Fo mo e in o ma ion on he su ey, see
h ps://www.ecb.eu opa.eu/s a s/ecb_su eys/consume _exp_su ey/h ml/index.en.h ml.
Special A icle | 98
de e minan s o house p ices in he sho un; namely, income le els and in e es
a es.
Ra ional expec a ions heo y has signi ican implica ions o economic o ecas s, as
i posi s ha indi iduals and i ms o m hei expec a ions abou u u e economic
a iables (such as in la ion, in e es a es and ou pu ) based on all a ailable
in o ma ion, including he likely e ec s o cu en policies. This means ha i
economic agen s a e a ional and ma ke s a e e icien , o ecas ing e o s should
be andom a he han sys ema ic, since indi iduals would al eady an icipa e he
p edic able e ec s o policies o ends. Consequen ly, policymake s may ind i
di icul o impac he economy h ough mone a y o iscal policies i hese ac ions
a e an icipa ed. I also implies ha adi ional mac oeconomic models ha do no
accoun o a ional expec a ions may o e es ima e he e ec i eness o policy
in e en ions, as indi iduals will adjus hei beha iou o o se he an icipa ed
e ec s.
Ou esul s e eal ha , in acco dance wi h he p e ious li e a u e, we can ejec
he null hypo hesis o a ionali y among Eu opean households in e ms o house
p ice expec a ions. This is impo an in e ms o he mechanisms ega ding house
p ice expec a ions ha a e adop ed in di e en housing, and mo e b oadly
mac oeconomic, models. In u n his can ha e implica ions o conclusions eached
abou he p esence o housing bubbles o pe iods o i a ionali y among
consume s in e ms o hei a i udes o house p ice de elopmen s. We also ind
an impo an dis inc ion be ween he ole played by ac ual and expec ed changes
in eal in e es a es. I appea s ha households a e mo e in luenced by expec ed
changes in eal in e es a es han in changes in he ac ual a e. Finally, ou esul s
sugges ha a ia ions in changes in eal income expec a ions ha e signi ican
implica ions o expec a ions ega ding eal house p ice changes. The e o e, i
would appea ha i is consume s’ expec a ions conce ning he gene al economy
ha is o mos impo ance in shaping hei belie s abou he u u e housing ma ke .
The es o he pape is s uc u ed as ollows. In he Sec ion 2, we e iew he
li e a u e on house p ice expec a ions. The da a and empi ical me hodology
adop ed a e hen discussed in he Sec ion 3, ollowing which he esul s o ou
analysis a e p esen ed, in Sec ion 4. Sec ion 5 o e s some concluding commen s.
2. LITERATURE REVIEW
Gi en he impo ance o consume s’ p ice expec a ions mechanisms, in hei
e iew pape Duca e al. (2021) con end ha his ‘sugges s ha egula su eys o
house p ice expec a ions should ha e been a high p io i y be o e he boom and
bus o he mid-2000s, [ye ] su eys a e spa se and in e mi en ’. Kuchle e al.
(2022) p o ide a summa y o s udies o house p ice expec a ions. In he case o he
Special A icle | 99
US esiden ial ma ke , while he Michigan Su ey o Consume s has p o ided
in o ma ion on he housing ma ke since 1960, da a on poin es ima es o house
p ice expec a ions ha e only been a ailable since 2007.
Case and Shille (1989), based on hei 1988 su ey, con ended ha people seemed
o base hei expec a ions on house p ices on pas house p ice mo emen s a he
han expec a ions o key ma ke undamen als. In 2013, in ligh o he inancial
c isis, he Fede al Rese e Bank o New Yo k launched he mon hly Su ey o
Consume Expec a ions (SCE), which e e y mon h con ains ques ions on
esponden s’ expec a ions o house p ices. Fannie Mae’s Na ional Housing Su ey
(NHS) has su eyed US households since 2010 on expec a ions abou housing
ma ke s. In addi ion, be ween 2003 and 2012, Case e al. (2012) conduc ed su eys
o ecen home buye s in ou US coun ies ha expe ienced signi ican p ice
app ecia ion p io o 2008.
On a Eu opean wide basis, in o ma ion on house p ice expec a ions, income le els,
in e es a es and c edi s anda ds has only become a ailable wi h he ini ia ion by
he ECB o he Consume Expec a ions Su ey (CES) wi h da a a ailable om 2020.
Eu ozone membe cen al banks, such as he Bundesbank, he Bank o Spain and
he Bank o I aly, conduc coun y-le el su eys, which include ques ions on he
housing ma ke . Howe e , he CES is he only su ey a ailable o a numbe o
Eu ozone coun ies. The CES is an online panel su ey o consume s, and is ca ied
ou on a mon hly basis. The mic oda a o he CES a e collec ed h ough a su ey
o a panel o eu ozone consume s, which is cu en ly conduc ed by Ipsos Public
A ai s on behal o he ECB. The coun ies included since he beginning o he
su ey a e: Belgium, F ance, Ge many, I aly, he Ne he lands and Spain. In 2022,
he sample was ex ended o co e i e addi ional coun ies: Aus ia, Finland,
G eece, I eland and Po ugal.
In compa ing a ia ions in he house p ice expec a ions o he Michigan Su eys o
Consume s and ac ual house p ice mo emen s, Kuchle e al. (2022) no e wo
s ylized ac s among he da a: house p ice expec a ions end o be mo e op imis ic
a e ecen pe iods o ac ual house p ice app ecia ion; and he ime-se ies
a ia ion in expec a ions is ac ually smalle han he ime-se ies a ia ion in he
mo emen o ac ual p ices.
One o he ea lie assessmen s o he ole played by house p ice expec a ions was
conduc ed by Ab aham and Hende sho (1996). He e, hese au ho s ou line he
manne in which expec a ions can in e ac wi h ma ke undamen als. In he
con ex o an equilib ium co ec ion model, hey also discuss he concep o
posi i e ‘bubble-builde ’ e ec s on house p ices – om ecen ises in house p ices
– and nega i e ‘bubble-bu s e ’ e ec s – om high le els o eal house p ices
ela i e o undamen als. The bubble-builde e ec a ises i many agen s base hei
Special A icle | 106
o 1.07 and 1.11, espec i ely, main aining hei s a is ical signi icance a he 1 pe
cen le el.
Howe e , a signi ican con as eme ges when conside ing he in luence o eal
in e es a es. In he eg ession o ac ual house p ice g ow h, he eal in e es a e
has a nega i e bu s a is ically insigni ican e ec . In con as , o expec ed house
p ice g ow h, he expec ed eal in e es a e has a signi ican ly nega i e impac ,
wi h coe icien s o -0.57 and -0.65 whe e bo h a e s a is ically signi ican . This
sugges s ha while ac ual house p ices may no espond immedia ely o changes
in eal in e es a es, ma ke expec a ions o u u e house p ices a e mo e sensi i e
o an icipa ed changes in in e es a es.
10
TABLE 2 EXPECTED HOUSE PRICE GROWTH AND DETERMINANTS
Dependen a iable: ∆𝑃𝑖𝑡
𝐸.
Va iable
(1)
(2)
(3)
∆𝑌𝑖𝑡
𝐸
0.61***
1.07***
1.11***
(0.07)
(0.18)
(0.20)
∆𝑅𝑖𝑡
𝐸
-0.57***
-0.65***
(0.20)
(0.23)
∆𝑆𝑖𝑡
𝐸
0.01
(0.01)
Coun y ixed e ec
Yes
yes
yes
R-squa ed
0.46
0.49
0.50
No o obs.
108.00
102.00
89.00
No e: The able epo s he eg ession es ima es, whe e he dependen a iable is house p ice g ow h (∆𝑃𝑖𝑡)
𝐸 and he
explana o y a iables a e household income g ow h (∆𝑌𝑖𝑡
𝐸), eal in e es a e (∆𝑅𝑖𝑡
𝐸) and house supply g ow h.
4.3 Ra ionali y es s
We now mo e o analyse he a ionali y o house p ice expec a ions and ha o i s
key de e minan s – eal income and in e es a e. Tables 3, 4 and 5 p esen he
a ionali y es s o house p ice, income and in e es a e, espec i ely. Fo each
case, we es ima e wo models, whe e column (1) desc ibes he es ima ion esul
o a panel se up wi h all coun ies combined and column (2) cap u es c oss-
coun y a ia ion. In o he wo ds, he o me es s o he a ionali y o house
p ice, income and in e es a es o Eu ope as a whole, while he la e es s o
he a ionali y o each coun y in ou sample sepa a ely. In column (1) o Tables 3,
10
We also conduc a obus ness check in his case, using an al e na i e es ima ion s a egy – dynamic panel GMM – and
ind simila esul s (please e e Table A2 in he appendix o he esul s).

Special A icle | 107
4 and 5, we es whe he he mean es ima e o expec ed house p ices, expec ed
in e es a es and expec ed income a e signi ican ly di e en om 1. Fu he mo e,
in column (2) o each able, we es whe he he sum o he mean es ima e o he
a iable o in e es (expec ed house p ices, expec ed in e es a e and expec ed
income) and he co esponding coun y le el es ima e a e s a is ically di e en
om 1.
Fo ins ance, in Table 3, we ejec he a ionali y o Belgium’s house p ices, as he
sum o he coe icien o mean es ima e (∆𝑃𝑖𝑡
𝐸), 5.22, and coun y-le el es ima e
BE × ∆𝑃𝑖𝑡
𝐸, -1.75, is s a is ically di e en om 1. Table 3 shows ha he coe icien
on expec ed house p ice g ow h is 2.49 o he panel se up and 5.22 o he c oss-
coun y a ia ion case. The coe icien a he coun y le el in column (2) is such
ha he combined coe icien o expec ed house p ice g ow h and he espec i e
coun y’s expec ed house p ice g ow h is di e en om 1, which con i ms he
ejec ion o he a ionali y hypo hesis o house p ices.
TABLE 3 RATIONALITY TEST: HOUSE PRICE GROWTH
Dependen a iable: ∆𝑃𝑖𝑡.
(Combined panel)
(C oss-coun y a ia ion)
Va iable
(1)
(2)
∆𝑃𝑖𝑡
𝐸
2.49***
5.22**
(0.31)
(2.37)
BE × ∆𝑃𝑖𝑡
𝐸
-1.75
(2.57)
DE × ∆𝑃𝑖𝑡
𝐸
0.91
(2.47)
ES × ∆𝑃𝑖𝑡
𝐸
-5.31*
(2.82)
FI × ∆𝑃𝑖𝑡
𝐸
-5.33**
(2.66)
Special A icle | 108
FR × ∆𝑃𝑖𝑡
𝐸
-1.98
(2.57)
IE × ∆𝑃𝑖𝑡
𝐸
-6.47**
(2.74)
IT × ∆𝑃𝑖𝑡
𝐸
-4.27*
(2.44)
NL × ∆𝑃𝑖𝑡
𝐸
-2.40
(2.40)
PT × ∆𝑃𝑖𝑡
𝐸
-5.37**
(2.56)
Cons an
6.46***
3.74***
(0.95)
(1.00)
Coun y ixed e ec
yes
yes
R-squa ed
0.40
0.64
No o obs.
108.00
108.00
No e: The able epo s he eg ession es ima es, whe e he dependen a iable is house p ice g ow h (∆𝑃𝑖𝑡) and he key
explana o y a iable is expec ed house income g ow h (∆𝑃𝑖𝑡
𝐸). The in e ac ion e m e e s o c oss-coun y a ia ion
in he ela ionship be ween expec ed house p ice and house p ice g ow h. He e oskedas ici y obus s anda d e o s
a e epo ed in pa en heses. As e isks (∗∗∗, ∗∗ and ∗) deno e s a is ical signi icance a 1, 5 and 10 pe cen le els.
We ind simila esul s in he case o eal income as shown in Table 4. The
coe icien on expec ed house p ice g ow h is 1.90 o he panel se up and -0.62
o whe e c oss-coun y a ia ion is allowed o . Mo eo e , he coe icien a he
coun y le el is such ha he combined coe icien o he expec ed house p ice
g ow h and he espec i e coun y’s expec ed house p ice g ow h is signi ican ly
di e en om 1.
TABLE 4 RATIONALITY TEST: REAL INCOME
Dependen a iable: ∆𝑌𝑖𝑡.
Va iable
(Combined panel)
(C oss-coun y a ia ion)
∆𝑌𝑖𝑡
𝐸
1.90***
-0.62***
(0.23)
(0.00)
Special A icle | 109
BE × ∆𝑌𝑖𝑡
𝐸
6.84***
(0.00)
DE × ∆𝑌𝑖𝑡
𝐸
3.27***
(0.00)
ES × ∆𝑌𝑖𝑡
𝐸
4.76***
(0.00)
FI × ∆𝑌𝑖𝑡
𝐸
2.44***
(0.00)
FR × ∆𝑌𝑖𝑡
𝐸
3.05***
(0.00)
IE × ∆𝑌𝑖𝑡
𝐸
1.24***
(0.00)
IT × ∆𝑌𝑖𝑡
𝐸
2.62***
(0.00)
NL × ∆𝑌𝑖𝑡
𝐸
3.91***
(0.00)
PT × ∆𝑌𝑖𝑡
𝐸
2.12***
(0.00)
Cons an
4.19***
7.11***
(1.17)
(0.00)
Coun y ixed e ec
yes
yes
R-squa ed
0.42
0.67
No o obs.
108.00
108.00
No e: The able epo s he eg ession es ima es, whe e he dependen a iable is household eal income g ow h (∆𝑌𝑖𝑡 )
and he key explana o y a iable is expec ed household eal income g ow h (∆𝑌𝑖𝑡
𝐸). The in e ac ion e m e e s o
c oss-coun y a ia ion in he ela ionship be ween expec ed household eal income g ow h and household eal
income g ow h. He e oskedas ici y obus s anda d e o s a e epo ed in pa en heses. As e isks (∗∗∗, ∗∗, ∗) deno e
s a is ical signi icance a 1, 5 and 10 pe cen le els.
Las ly, d awing om Table 5, we ejec he a ionali y hypo hesis in he case o he
eal in e es a e. Based on his, we consis en ly ejec he a ionali y hypo hesis
ac oss bo h model speci ica ions o house p ices, in e es a es and income, as we
Special A icle | 110
ind he coe icien o expec ed house p ices, expec ed income and expec ed eal
in e es a e is s a is ically signi ican and di e en om 1 on a e age and in he
case o each indi idual coun y.
TABLE 5 RATIONALITY TEST: REAL INTEREST RATE
Dependen a iable: ∆𝑅𝑖𝑡.
Va iable
(Combined panel)
(C oss-coun y a ia ion)
∆𝑅𝑖𝑡
𝐸
1.67***
0.63**
(0.14)
(0.26)
BE × ∆𝑅𝑖𝑡
𝐸
2.83***
(0.47)
DE × ∆𝑅𝑖𝑡
𝐸
1.59***
(0.49)
ES × ∆𝑅𝑖𝑡
𝐸
3.01***
(0.54)
FI × ∆𝑅𝑖𝑡
𝐸
0.51
(0.39)
FR × ∆𝑅𝑖𝑡
𝐸
1.51**
(0.62)
IE × ∆𝑅𝑖𝑡
𝐸
0.41
(0.41)
IT × ∆𝑅𝑖𝑡
𝐸
0.80**
(0.34)
NL × ∆𝑅𝑖𝑡
𝐸
2.83***
(0.46)
PT × ∆𝑅𝑖𝑡
𝐸
0.54
(0.39)
Cons an
-0.74**
-0.42*
Special A icle | 111
(0.30)
(0.22)
Coun y ixed e ec
yes
yes
R-squa ed
0.60
0.81
No o obs.
102.00
102.00
No e: This able epo s he eg ession es ima es, whe e he dependen a iable is eal in e es a e (∆𝑅𝑖𝑡) and he key
explana o y a iable is expec ed eal in e es a e (∆𝑅𝑖𝑡
𝐸). The in e ac ion e m e e s o c oss-coun y a ia ion in
he ela ionship be ween he expec ed eal in e es a e and eal in e es a e. He e oskedas ici y obus s anda d
e o s a e epo ed in pa en heses. As e isks (∗∗∗, ∗∗ and ∗) deno e s a is ical signi icance a 1, 5 and 10 pe cen
le els.
Rejec ing a ionali y o expec a ions o house p ice g ow h, eal income and eal
in e es a es is no unexpec ed, and indeed i co ela es wi h he li e a u e
men ioned p e iously, which has ended o ejec he hypo hesis o a ionali y
pa icula ly in he con ex o house p ices. The indings indica e ha ma ke s o
housing, income expec a ions and in e es a es may no be e icien , likely due o
beha iou al biases, in o ma ion asymme ies and o he ma ke ic ions. This
ine iciency highligh s he need o ailo ed in e en ions o s abilise housing
ma ke s and add ess specula i e bubbles. These esul s also imply ha models
based on a ional expec a ions may no accu a ely o ecas u u e mo emen s o
house p ices.
To unde s and he non- a ionali y o house p ice g ow h, we nex examine house
p ice o ecas e o , and analyse he ole o income o ecas e o and in e es a e
o ecas e o in explaining he a ia ion in his.
4.4 House p ice o ecas e o and i s de e minan s
As we examine he ole o household income and in e es a e as key de e minan s
o house p ice, we aim o unde s and he ex en o which he o ecas e o in he
o me can con ibu e o he o ecas e o o he la e . As shown in columns (1)
and (2) o Table 6, we ind ha o ecas e o s o he g ow h a e o income ha e
a signi ican posi i e associa ion wi h house p ice o ecas e o s, indica ing ha
inaccu acies in income p edic ions lead o la ge e o s in house p ice o ecas s.
Howe e , i appea s o be inconclusi e ega ding he impac o in e es a e
o ecas e o s; while he coe icien is nega i e in one column, sugges ing a
dec ease in he o ecas e o o house p ices is associa ed wi h a highe a e o
o ecas e o o in e es a es. The ela ionship is no s a is ically signi ican .
TABLE 6 HOUSE PRICE FORECAST ERROR, INTEREST RATE FORECAST ERROR AND INCOME
FORECAST ERROR
Dependen a iable: ∆𝑃𝑖𝑡
𝐸𝐹
Va iable
(1)
(2)
∆𝑌𝑖𝑡
𝐸𝐹
0.66***
0.72***
(0.11)
(0.22)

Special A icle | 112
∆𝑅𝑖𝑡
𝐸𝐹
-0.13
(0.39)
Cons an
2.56***
2.07***
(0.43)
(0.77)
Coun y ixed e ec
Yes
yes
R-squa ed
0.28
0.29
No o obs.
108.00
102.00
No e: This able epo s he eg ession es ima es, whe e he dependen a iable is he house p ice o ecas e o (∆𝑃𝑖𝑡
𝐸𝐹),
and he explana o y a iables a e he income o ecas e o (∆𝑌𝑖𝑡
𝐸𝐹) and he eal in e es a e o ecas e o (∆𝑌𝑖𝑡
𝐸𝐹).
He e oskedas ici y obus s anda d e o s a e epo ed in pa en heses. As e isks (∗∗∗, ∗∗ and ∗) deno e s a is ical
signi icance a 1, 5 and 10 pe cen le els.
O e all, while o ecas e o s o income le els s ongly in luence he
co esponding e o s o house p ices, he e ec o in e es a e o ecas e o s is
no signi ican . The esul s sugges ha , in he con ex o o ecas ing house p ices,
accu a e p edic ions o income play a c ucial ole. When income o ecas s a e
inaccu a e, i leads o signi ican e o s in p edic ing house p ices. This inding
aligns wi h he b oade economic unde s anding ha household income is a key
de e minan o housing demand and a o dabili y. The e o e, any inaccu acies in
income p ojec ions could ha e subs an ial implica ions o housing ma ke
dynamics, a ec ing a eas such as housing a o dabili y, demand–supply dynamics
and, ul ima ely, o e all ma ke s abili y.
On he o he hand, he inconclusi e ela ionship be ween in e es a e o ecas
e o s and house p ice o ecas e o s is somewha su p ising, gi en he pi o al
ole o in e es a es in shaping bo owing cos s and mo gage a es, which in u n
in luence housing demand and a o dabili y. While expec a ions o eal in e es
a es do appea o impac house p ice o ecas s, he same ela ionship does no
pe ain o he o ecas e o s o bo h a iables.
5. CONCLUDING THOUGHTS
S udies o house p ice expec a ions ha e gene ally been somewha limi ed by he
absence o da a on he issue. This is despi e he ac ha expec a ions hemsel es
ha e been demons a ed o comp ise an impo an ac o in e ms o impac ing
ma ke de elopmen s. The e o e, he a ailabili y o he Eu opean Cen al Bank’s
(ECB) Consume Expec a ions Su ey (CES) is pa icula ly welcome, coming as i
does a a ime when house p ices ha e s a ed o inc ease ollowing an inc ease in
household sa ings, which has been e iden since he COVID-19 pandemic.
We belie e ou esul s in assessing house p ice expec a ions ha e a numbe o
in e es ing implica ions. Fi s o all, as no ed by much o he li e a u e ha has
Special A icle | 113
assessed his issue, in he con ex o house p ices, we ail o ind e idence o
suppo he a ional expec a ions hypo hesis. The endency o households o ha e
house p ice expec a ions ha a e di e en om a ional expec a ions, which a e
o en associa ed wi h e icien ma ke s, can exace ba e he a iabili y o house
p ice mo emen s. Pe iods o signi ican house p ice app ecia ion, which a e maybe
ini ially due o a ia ions in undamen al a iables in he housing ma ke , can hen
be ampli ied by al e na i e house p ice expec a ions among consume s.
Ou es ima es sugges ha while ac ual mo emen s in eal in e es a es do no
appea o signi ican ly impac changes in house p ices, expec ed changes in eal
in e es a es do ha e a signi ican e ec on expec a ions o u u e house p ice
mo emen s. This unde sco es he impo ance o he signalling o mone a y policy
and, in pa icula , he g owing body o li e a u e ha ocuses on cen al bank
communica ions (see Casi aghi and Pio Pe ez (2022) o mo e on his). I would
appea his communica ions channel can ha e a signi ican impac on he housing
ma ke in e ms o guiding consume s’ expec a ions.
Finally, in e ms o he impac on house p ices, ou esul s con i m o e all he
impo ance o consume s’ expec a ions ega ding he gene al economy, gi en he
signi icance o he household income a iable. By changing households’ pe cei ed
po en ial a o dabili y le els, expec a ions abou he gene al economy is
demons a ed o ha e he mos pe inen impac on he housing ma ke . This
bea s ou he well-es ablished ela ionship be ween he housing ma ke and he
gene al economy, and iden i ies he expec a ions channel as ano he means by
which de elopmen s in he la e can ha e signi ican implica ions o he o me .
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TABLE A2 DYNAMIC PANEL GMM ESTIMATION FOR HOUSE PRICE EXPECTATIONS AND ITS DETERMINANTS
(1)
(2)
(3)
Expec ed house p ice g ow h
L1. Expec ed house p ice
g ow h
0.511***
0.345*
0.358***
(3.33)
(1.87)
(2.80)
Expec ed income g ow h
0.512***
0.990***
0.918***
(7.86)
(4.57)
(4.28)
Expec ed eal in e es a e
-0.491**
-0.472**
(-2.40)
(-2.32)
House supply g ow h
0.003
(0.29)
P alue Hansen s a is ic
0.981
0.944
0.982
Obse a ions
98
98
85
p alue o AR(1)
0.233
0.382
0.212
p alue o AR(2)
0.501
0.391
0.444
No e: GMM e e s o gene alised me hod o momen s.

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