## 1irlea2023002

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**Canonical URL:** [1irlea2023002](https://www.imf.org/-/media/files/publications/cr/2023/english/1irlea2023002.pdf)

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---

### Key Features of Selected Sovereign Wealth Funds — Context and policy motivation
- Public finances in Ireland have improved through recent shocks, supported by strong revenue growth from corporate income tax (CIT).
- CIT concentration and fragility:
  - Ireland’s share of CIT in total revenue is “almost 1/3”.
  - The OECD European-country average share of CIT in total revenue is “about 6 percent”.
  - “Over half of CIT revenues are being paid by the top-10 taxpayers.”
  - MNEs are estimated to be responsible for “about 30 percent of total income tax receipts.”
- Investment needs and targets:
  - Authorities aim to maintain public investment “at above 5 percent of GNI* through 2030.”
  - The 2021 National Development Plan implies a total allocation of “€165 billion” focused on housing, climate, transportation, healthcare, and jobs growth.
- Proposed funds to manage excess CIT-driven surpluses:
  - Future Ireland Fund (FIF): annual allocation of “0.8 percent of GDP”; contributions made until “2035” (no upper size limit stated).
  - Infrastructure, Climate and Nature Fund (ICNF): fixed “€2 billion” annual allocation to be transferred starting in “2024” until the fund reaches a total contribution of “€14 billion by 2030.”

### Trade-offs: saving vs. debt reduction
- Choice depends on fiscal risk profile and optimal debt assessment.
- Arguments in favor of saving:
  - Ireland’s relatively strong current fiscal position and favorable public debt structure and dynamics.
  - Sound credit rating and ample access to capital markets on favorable terms.
  - Good track record of sound fiscal policies.
- Design note:
  - Evaluating the prudent medium-term debt anchor is outside the paper’s scope, but fund design must be integrated with an appropriate fiscal policy framework.

### International typology and operational design of SWFs
- Five SWF types:
  - Stabilization funds (budget stabilization; example Chile’s ESSF).
  - Saving funds (intergenerational equity; example Alberta Heritage Saving Trust Fund).
  - Strategic Investment/Development funds (“dual bottom-line objective”; examples Singapore’s Temasek; Ireland’s Strategic Investment Fund).
  - Public pension (pension reserve) funds (examples: Australia’s Future Fund; Chile’s Pension Reserve Fund).
  - Reserve investment corporations (reduce reserve carry cost; example GIC).
- Operational design trade-offs:
  - Operational rules (accumulation, withdrawal, spending) should align with objectives and fiscal framework.
  - Rigid rules can hinder risk and liquidity management and may be circumvented by government borrowing.
  - Predetermined transfers (shares or nominal amounts) could constrain fiscal flexibility during downturns and force borrowing when undesirable.
  - Flexible frameworks preferred but must be linked to the fiscal policy framework to avoid misuse for short-term spending.
  - Examples of linkage: Chile and Norway.

### Macroeconomic and asset-allocation implications
- SWF operations affect monetary conditions, exchange rates, and financial markets via injections/withdrawals.
- Domestic investment by SWFs can create macroeconomic imbalances if poorly coordinated due to procyclicality of returns.
- Use of funds to reduce reserve carry costs can affect monetary policy.
- Investment horizons by objective:
  - Saving/development funds: longer horizons; can hold illiquid, higher-yield assets (real estate, private equity).
  - Pension reserve funds: horizon tied to liabilities; may hold less liquid assets if liabilities are long-dated.
  - Stabilization funds: shorter/uncertain horizons => conservative SAA with larger shares in cash and highly liquid assets (e.g., sovereign bonds).
- Strategic investment funds increasingly allocate to alternatives (infrastructure, private equity, environmentally and socially driven investments) aligned with climate/sustainability goals.

### SWF funding-source implications and fiscal governance
- Commodity-funded SWFs often invest in assets negatively correlated with the revenue source; investing abroad can ensure diversification and shield the domestic economy.
- Examples:
  - Norway’s Government Pension Fund Global (GPFG) invests only abroad.
  - Government Pension Fund Norway (GPFN) invests domestically and in the Nordic region; GPFN derives funding from profits, GPFG from oil revenues.
- Domestic investments by SWFs could raise governance concerns if they are government spending operations that should be within the budget.
- The SAA should be expressed in strategic benchmarks allowing measurement, attribution, and assessment of returns.
- Best practice: integrate SWFs in the fiscal framework to avoid parallel budgets, ensure transparency and accountability (example Norway where net allocation to GPFG forms part of the integrated budgetary process).

### Considerations for Ireland: rationale, risks, and institutional design
- Key justification:
  - The likely temporary nature of excess CIT revenues highlights the importance of saving today to smooth public finances amid vulnerabilities and upcoming spending pressures.
- Proposed roles for new funds:
  - A savings fund and a counter-cyclical infrastructure, climate and nature fund could mitigate large swings in CIT revenues and potential procyclical effects on aggregate demand.
- CIT-specific challenges:
  - Uncertainty about the “exhaustibility” of CIT revenues complicates fund design; unlike commodity funds, no clear depletion horizon.
  - Short-term CIT amounts are uncertain; sudden reversals pose risks to future surpluses.
  - Key question: whether the time horizon for excess CIT revenues is large enough to sustain a long-term saving fund.
  - Need for clear provisions in event of significant CIT shortfall to ensure funds remain appropriately funded.
- Resilience mechanisms:
  - Consider flexible transfer mechanisms anchored in the fiscal framework (as in Chile and Norway) to lessen negative budgetary impacts during downturns.
  - Specify clear provisions for handling larger CIT windfalls.
- Fiscal framework and governance:
  - Operational rules should be consistent with Ireland’s fiscal policy framework and the Santiago Principles.
  - With EU fiscal rules unlikely to be binding, reflect on an appropriate medium- to long-term fiscal anchor beyond the 2022–26 spending rule and integrate the new funds within it.
  - Clarify delineation of purposes and objectives to avoid overlap with each other and with Ireland’s existing Strategic Investment Fund.
  - Coordinate fund operations within the budgetary process to avoid spending fragmentation.
- Limits and reform needs:
  - The funds can strengthen public finances but are not a substitute for reforms.
  - CIT concentration risk reinforces the need to broaden the tax base.
  - Upcoming spending pressures could be large; relying only on future savings may be insufficient.
  - Authorities’ simulations suggest a fund is helpful but will not fully cover the estimated funding shortfall by 2035.
  - The exercise did not consider costs from green and digital transitions; decisive reforms are needed to ensure pension system sustainability and safeguard fiscal sustainability.

### Attribution
- Prepared by Karina Garcia (EUR) and Kika Alex-Okoh, Karla Vasquez Suarez, and Alissa Ashcroft (all LEG).

*Source: 1irlea2023002.*

---

### Judicial review of planning and the Planning and Development Bill 2023 — key problems and proposed reforms
- Key problems with current planning and permitting:
  - The planning and permitting system is complex and slow; many developments are subject to lengthy judicial reviews, introducing uncertainty and unpredictable lead times before construction begins.
  - High number of permissions to build that fail to materialize; larger-scale development applications have predominantly been subject to judicial review, particularly after An Bord Pleanala (ABP) decisions.
  - Threat of judicial review and associated delay affects all significant development proposals.
- Capacity improvements:
  - More Board members appointed to ABP, bringing total to statutory limit of fifteen, improving decision-making capacity.
  - ABP disposed of 369 cases in September 2023, an increase of 148% from cases disposed by the end of September 2022.
- Remaining inefficiencies:
  - Additional legal reform needed to improve efficiency of judicial review and address institutional governance issues within the planning board.

### Planning and Development Bill 2023 — objectives and governance reforms
- Bill objectives:
  - Bring greater clarity, improve consistency and confidence in the planning system.
  - Enhance ABP governance and introduce judicial review reforms.
- ABP governance restructure (to be renamed An Coimisiun Pleanala (ACP)):
  - Governing executive responsible for day-to-day organization and governance.
  - Decision-making functions on planning permissions led by planning commissioners.
- Mandatory timelines for ACP planning consent:
  - Headline time periods in the Bill range from 18 weeks for appeals of decisions of planning authorities to 48 weeks for Strategic Infrastructure Developments.
  - The Bill sets proportionately escalating measures if ACP does not make decisions within mandatory time limits.

### Judicial-review reforms proposed by the Bill
- Remove the application to leave stage.
- Clarify provisions on standing to bring judicial review cases and grounds for review.
- Procedural changes including a stay of proceedings allowing the ACP to correct errors in its decision-making.
- Introduction of an environmental legal costs scheme administered by the Minister for the Environment, Climate and Communications (or authorized body) with consultation and consents as specified.
- Establish a dedicated Planning and Environment division of the High Court with specialized judges to address the large number of judicial review cases.

### Specific judicial-review features in the Bill
- Timeline to bring cases:
  - A timeline to bring cases for judicial review is set at 8 weeks and can only be extended for exceptional reasons.
  - The Bill requires the High Court to act expeditiously and the Rules of Court contain specified timelines for various stages of the proceedings.
- Standing (locus standi):
  - Current: Substantial interest.
  - Proposed: Sufficient interest defined as being or potentially being “directly or indirectly materially affected”.
  - Except for specified bodies (notably environmental NGOs), applicants must exhaust any available appeal or administrative procedures regarding the decision being challenged.
- Stay of proceedings:
  - The Bill would allow time for the planning board or authority to address identified errors and to apply for a stay on judicial review determination while doing so.
- Costs regime:
  - Under the Aarhus Convention, costs to challenge planning decisions cannot be prohibitively expensive.
  - The Bill proposes an administrative environmental legal costs scheme; details are yet to be determined.
  - The scheme may involve scale of fees for all applications and intends to provide a contribution to the applicant’s costs where the applicant is unsuccessful.
  - Frivolous or vexatious applicants are deterred with denial of cost recovery.
- Exemptions and special status:
  - Environmental NGOs (ENGOs) are exempt from the requirement to exhaust all alternative remedies and retain special status under the Bill, aligned to Ireland’s Aarhus commitments, subject to certain criteria.

### Comparative assessment and alignment with other jurisdictions
- Cross-jurisdictional similarities:
  - Courts generally review questions of law rather than fact in planning judicial review proceedings.
  - Expediency is a shared objective across surveyed jurisdictions.
- Timelines and standing examples:
  - Ireland: Timeline to bring action 8 weeks; Standing: A person with sufficient interest; Scope: Question of law.
  - Australia (New South Wales): 3 months; Any person; Question of law.
  - Canada (Ontario): 30 days; Any person; Question of law.
  - US: Absent a specific statutory deadline, actions can be brought within 6 years; Standing: Any person who has suffered a personal, legal wrong or adversely affected or aggrieved; Scope: Questions of law and questions of fact (to extent facts are subject to trial).
- Costs and protections:
  - Successful party often entitled to legal costs in many jurisdictions; Ireland provides costs protection for judicial review proceedings.
- Assessment:
  - The Bill’s reforms align with regimes in comparable jurisdictions by clarifying standing (including ENGOs) and costs protections, and by providing specific timelines.
  - Caveat: Similar statutory language may be construed differently by domestic courts; impact depends on judicial interpretation.

*Source: IMF staff chapter — “Ireland: Judicial review of planning decisions” (1irlea2023002).*

---

### Productivity dynamics: MNE-driven growth and limited spillovers to the indigenous economy
- Stylized fact:
  - Ireland’s growth of multifactor productivity outpaced EA peers recently, but outperformance is mainly driven by rapid growth in sectors dominated by foreign firms (MNEs).
  - The indigenous economy (SMEs in traditional sectors) has limited proximity to technology frontiers and limited economies of scale.
  - Multifactor productivity in sectors dominated by indigenous firms has lagged EA peers and declined since the GFC.
- Data and empirical approach:
  - Dataset spans 1995Q1 to 2023Q1 with sectoral GVA, employment, wage, and labor productivity.
  - Sectors classified by foreign vs domestic dominance per Central Statistical Office (CSO) method.
  - Baseline approach: local projection (Jorda 2005) evaluating impact of a shock in MNE-dominated manufacturing on domestic manufacturing/services employment, wages, and labor productivity.
  - Baseline regression: Y_{t+h} - Y_{t-1} = β_h F_t + Σ γ′_{h n} X_{t−n} + ε_{t+h}, where F_t is the quarterly change in GVA of foreign MNEs; X_t includes lags of the MNE shock, lags of the dependent variable, real GNI* growth, and external demand.
  - Robustness: levels, sample periods, structural VAR; conclusions hold.

### Key summary statistics (y-o-y percentage change; sample period labels preserved)
- GVA of foreign manufacturing (1996Q1 to 2023Q1): Mean 7.61; SD 13.2; Min -34.4; Max 45.4
- GVA of domestic manufacturing (1996Q1 to 2023Q1): Mean 2.8; SD 11.2; Min -30.0; Max 42.1
- GVA of information communication (1996Q1 to 2023Q1): Mean 10.9; SD 9.8; Min -14.6; Max 30.7
- GVA of domestic services (1996Q1 to 2023Q1): Mean 3.3; SD 4.0; Min -12.4; Max 12.0
- Employment of foreign manufacturing (1996Q1 to 2023Q1): Mean -0.5; SD 13.2; Min -38.1; Max 62.5
- Employment of domestic manufacturing (1996Q1 to 2023Q1): Mean -0.5; SD 18.3; Min -48.9; Max 93.8
- Employment of information communication (1996Q1 to 2023Q1): Mean 5.1; SD 7.4; Min -6.4; Max 36.3
- Employment of domestic services (1996Q1 to 2023Q1): Mean 3.2; SD 4.2; Min -11.0; Max 16.1
- Labor productivity of foreign manufacturing (1996Q1 to 2023Q1): Mean 14.8; SD 26.0; Min -44.0; Max 150.4
- Labor productivity of domestic manufacturing (1996Q1 to 2023Q1): Mean 6.3; SD 19.3; Min -46.0; Max 80.1
- Labor productivity of information communication (1996Q1 to 2023Q1): Mean 7.2; SD 12.2; Min -18.3; Max 43.4
- Labor productivity of domestic services (1996Q1 to 2023Q1): Mean 0.3; SD 2.5; Min -7.9; Max 5.4
- Modified Gross National Income (GNI*) (1996Q1 to 2023Q1): Mean 3.7; SD 5.6; Min -13.0; Max 17.2
- Trading partner GDP (1996Q1 to 2023Q1): Mean 1.9; SD 2.6; Min -11.7; Max 15.4
- Real Effective Exchange Rate (1996Q1 to 2023Q1): Mean -0.4; SD 4.8; Min -11.2; Max 12.7
- Relative wage of domestic services (1996Q1 to 2023Q1): Mean -1.1; SD 7.8; Min -26.7; Max 28.1

### Empirical findings: employment, wages, REER, and productivity spillovers
- Employment:
  - A one-percentage-point increase in GVA of MNE-dominated manufacturing has a positive but modest impact on employment in domestic manufacturing and services over a five-year horizon.
  - MNEs appear to crowd in some service sectors (catering, transportation, professional services), though evidence is not very strong.
  - Domestic manufacturing employment experienced growth after a positive MNE shock; no evidence domestic manufacturing lost employment via a “resource movement effect.”
  - Impulse responses indicate limited supply-chain linkages between MNE-dominated sectors and domestic manufacturing firms.
- Wages and REER:
  - Point estimates suggest upward pressure on relative wages in services and on the REER over time.
  - Effects on wages and REER are small and statistically insignificant, especially for the REER.
  - No strong evidence that increased MNE manufacturing activity led to pronounced cost pressures; spending-effect erosion of competitiveness has been muted to date.
  - Risk remains of rising cost pressures if the MNE boom sustains.
- Labor productivity spillovers:
  - Increased MNE manufacturing activity does not appear to have improved labor productivity in domestic manufacturing in any economically meaningful or statistically robust way; point estimates imply some positive effect after year three but effect is small and weak.
  - In domestic services, MNE activity seems to have had negative productivity spillovers initially, with cumulative effect becoming somewhat positive over time.
  - Overall dynamic responses point to very weak productivity spillovers from the MNE sector to domestic manufacturing and services.

### Interpretation and policy implications
- No clear symptoms of “Dutch disease” in the post-crisis period.
- Possible explanations for limited resource movement and spending effects:
  - The nature and scale of Ireland’s FDI boom differ from natural resource booms.
  - Ireland’s fiscal prudence since its crisis may have prevented excessive public-sector wage pressures.
  - Flexible and inclusive labor market, including influx of foreign labor, may have absorbed wage and price pressures.
- Policy recommendations:
  - Facilitate links between MNEs and domestic firms via supply-chain linkages, labor mobility, and innovation cooperation.
  - Such policies could help raise productivity of domestic firms and overall economic resilience.
  - Further analysis recommended to explain limited spillovers and design effective policies for knowledge diffusion and talent mobility.

*Source: IMF staff analysis and estimates from the chapter “8. Productivity growth has been entirely driven by MNEs. Ireland’s growth of multifactor” (1irlea2023002).*

---

### Housing delivery, affordability, and policy recommendations
- Recent delivery and targets:
  - 22,400 homes completed to end-September 2023.
  - Q3 2023 was the third successive quarter where rolling 12 month completions exceeded 30,000.
  - Above 7,000 units commenced in the first quarter (the highest number of units commenced in any first quarter).
  - Permissions within the system are about 100,000 units.
  - Delivery in 2023 is forecast to exceed Housing for All targets and may be close to 32,000 units.
  - Forecasts suggest 2024 delivery may exceed target and potentially reach 35,000 or so units.
- Housing gap and population growth assumptions:
  - Assuming the Irish population will continue to grow by 0.87 percent each year:
    - Completing about 30,000 units each year would increase dwellings per thousand inhabitants from current 415 to 2011 level of 437 by 2030.
    - To reach the EU’s 2020 average of 495 units per thousand inhabitants by 2030, average annual completions would need to double to reach at least 60,000 units per year.

### Demand-side measures and trade-offs
- Demand-side measures can support affordability short term, especially when targeted to vulnerable tenants and buyers.
- Such measures often fuel demand and may translate into higher house prices or rents medium term unless narrowly targeted.
- Examples of demand-side supports:
  - Housing vouchers, housing subsidies, grants, tax relief, accommodative financing for first-time buyers.
- Caveat:
  - Demand-side interventions should be limited and narrowly targeted because they can exacerbate market imbalances.

### Emphasis on structural supply-side policies
- Structural supply-side policies should play a dominant role to close the housing gap and restore affordability sustainably.
- Key focus areas:
  - Promote productive use of land, planning, and zoning.
  - Ensure integrated urban planning with access to jobs, transport, and social/health services.
  - Coordinate policy across state and municipal levels and involve private sector stakeholders.
- Timing:
  - Supply-side measures take significant time to have effect.

### Reducing policy complexity, transparency, and judicial reform
- Reducing complexity and improving predictability is key to unleash construction potential and attract investors.
- Reforms to planning and judicial review (including the Planning and Development Bill 2023) aim to reduce construction delays via more efficient licensing, time-limited development planning, and modernized approvals.

### Labor, firm entry, financing, and productivity enhancements
- Policy actions:
  - Remove barriers to entry and attract skilled labour (architects, engineers, construction workers).
  - Facilitate access to financing for small builders and developers.
  - Provide affordable, timely financing mechanisms to improve competitiveness of small builders and avoid delays.
  - Incentivise adoption of digital technology and advanced automation to reduce labour reliance and improve productivity.
- Current position:
  - Construction sector productivity is at the EU average but well below EA peers.
  - Construction sector dominated by small firms: 97 percent of construction firms employ less than 10 people (Norris, 2023).
  - Skills/labour shortages: employment in construction was 6.5 percent in 2022, against 11 percent in 2007.

### Land use regulation, upzoning, and international examples
- Stricter land use regulations associate with less construction, lower housing supply, and reduced affordability.
- Upzoning benefits: efficient land use, reduced sprawl, preservation of green spaces, lower infrastructure costs.
- Central government intervention may be needed where local incentives misalign with national housing priorities.
- Example: New Zealand amended its Resource Management Act in 2021 to allow higher-density housing without local government consents, established a Housing Acceleration Fund, and passed zoning reform to permit medium-density housing in major cities.

### Rent regulation, buy-to-let supply, and recommendations
- Rent caps introduced in 2016 and tightened in 2021; resulted in reduction in available rental stock and quality.
- 2018 survey: about one third of respondents identified rent legislation complexity and restrictiveness as a primary factor hampering buy-to-let investments.
- International evidence: increasing supply is more effective for affordable rents than rent controls (OECD, 2022).
- Recommendation: Replace rent controls with well-targeted budget support for poor households.
- Note: Excessive regulation may contribute to non-compliance and dual markets as investors seek to evade reduced returns.

### Social housing and public investment
- Housing for All plan:
  - Aim: increase supply by about 300,000 new units by 2030 (an average about 33,000 units each year), including 54,000 affordable homes.
  - Delivery targets include 90,000 social homes, 36,000 affordable purchase homes, and 18,000 cost rental homes to 2030.
  - Supported by investment package of over €4bn per annum through combination of €12bn in direct Central Government Exchequer funding, €3.5bn through the Land Development Agency, and €5bn through the Housing Finance Agency.
- Delivery performance:
  - Across 2021 and 2002, approximately 19,500 social homes delivered through build, acquisition and long-term leasing programs.
  - With strong delivery expected in 2023, overall delivery across 2021 to 2023 will be approximately 30,000 social homes.
- Advantage:
  - Social housing expands supply without fuelling demand (example: Canada’s Rapid Housing Initiative expecting at least 6,000 new affordable units).

### Taxation, local property tax, and macroprudential considerations
- Local property tax:
  - Introduced 2013; valuations reviewed every four years since 2021 amendment.
  - Measures: increased income threshold for tax deferrals and reduced interest rate on deferred taxes to shield low-income households.
  - Property tax revenue remains substantially smaller than EU peers; recommendation to gradually increase tax rate while ensuring adequate social protection.
- Macroprudential tools and impacts:
  - LTV and DTI ratios can limit household borrowing and affect affordability.
  - Macroprudential measures should be used to contain systemic risks, not substitute for targeted affordability measures.
  - ESRI estimate: house prices would have been up to 9 percent higher in Ireland in recent years if not for the Central Bank of Ireland’s macro-prudential rules.

*Source: IMF staff chapter on Ireland housing policy and recommendations (excerpts) — 1irlea2023002.*

### 1. Key Features of Selected Sovereign Wealth Funds ____________________________________ 11

### 1. Key Features of Selected Sovereign Wealth Funds

### Context and policy motivation
- Public finances in Ireland have improved through recent shocks, supported by strong revenue growth from corporate income tax (CIT).
- CIT revenues are a fragile source of funding due to high concentration and weak links to the domestic economy:
  - Ireland’s share of CIT in total revenue is “almost 1/3”.
  - The OECD European-country average share of CIT in total revenue is “about 6 percent”.
  - “Over half of CIT revenues are being paid by the top-10 taxpayers.”
  - MNEs are estimated to be responsible for “about 30 percent of total income tax receipts.”
- Ireland faces large investment needs and aims to maintain public investment “at above 5 percent of GNI* through 2030.” The 2021 National Development Plan implies a total allocation of “€165 billion” focused on housing, climate, transportation, healthcare, and jobs growth.
- Authorities propose two new funds to manage excess CIT-driven surpluses:
  - Future Ireland Fund (FIF): annual allocation of “0.8 percent of GDP”; contributions made until “2035” (no upper size limit stated).
  - Infrastructure, Climate and Nature Fund (ICNF): fixed “€2 billion” annual allocation to be transferred starting in “2024” until the fund reaches a total contribution of “€14 billion by 2030.”

### Trade-offs: saving vs. debt reduction
- The choice between saving excess CIT revenues and using them to reduce public debt depends on the fiscal risk profile and assessment of the optimal level of public debt.
- Arguments in favor of saving include:
  - Ireland’s relatively strong current fiscal position and favorable public debt structure and dynamics.
  - Sound credit rating and ample access to capital markets on favorable terms.
  - Good track record of sound fiscal policies.
- The paper notes that evaluating the prudent medium-term debt anchor is outside its scope but indicates that fund design must be integrated with an appropriate fiscal policy framework.

### International experience and typology of SWFs
- SWFs are created for varied objectives; some countries operate multiple funds with distinct mandates.
- Five broad SWF types described:
  - Stabilization funds: budget stabilization to respond to shocks (example: Chile’s ESSF).
  - Saving funds: intergenerational equity and conversion of nonrenewable asset wealth (example: Alberta Heritage Saving Trust Fund).
  - Strategic Investment or Development funds: “dual bottom-line objective” combining financial returns with socio-economic returns (examples: Singapore’s Temasek; Ireland’s Strategic Investment Fund).
  - Public pension (pension reserve) funds: set aside resources for future pension/social welfare liabilities (examples: Australia’s Future Fund; Chile’s Pension Reserve Fund).
  - Reserve investment corporations: reduce negative carry cost of foreign reserves or pursue higher-return investment policies (example: GIC).

### Operational rules and fiscal integration
- Cross-country evidence: SWFs are most successful when operational rules (accumulation, withdrawal, spending) align with stated policy objectives and the country’s fiscal framework.
- Key operational design features and trade-offs:
  - Operational rules guide accumulation and withdrawal, inform strategic asset allocation (SAA), and help achieve stated objectives.
  - Rigid rules can hinder optimal risk and liquidity management and may be circumvented by government borrowing.
  - Accumulation rules that transfer predetermined shares or nominal amounts could constrain fiscal flexibility during downturns and force borrowing when undesirable.
  - Flexible frameworks are preferred but must be linked to the fiscal policy framework to avoid misuse for short-term spending.
  - Examples of linking operational rules to fiscal frameworks include Chile and Norway.

### Macroeconomic implications of SWF operations
- SWF saving-investment decisions influence monetary conditions, exchange rates, and financial markets by changing resource injections or withdrawals from the economy.
- Domestic investment by SWFs, if poorly coordinated, can create macroeconomic imbalances due to procyclicality of returns.
- Use of funds to reduce reserve carry costs can affect monetary policy.

### Investment horizon and asset allocation
- Investment horizons largely depend on the SWF’s objectives:
  - Saving or development funds: longer horizons, can hold illiquid, higher-yield assets (real estate, private equity).
  - Pension reserve funds: horizon tied to timing of liabilities; may invest in less liquid assets if liabilities are long-dated.
  - Stabilization funds: shorter and uncertain horizons => more conservative SAA with larger shares in cash and highly liquid assets (e.g., sovereign bonds).
- Strategic investment funds increasingly allocate to alternative asset classes (infrastructure, private equity, environmentally and socially driven investments) aligned with expanded mandates and climate/sustainability goals.

*Prepared by Karina Garcia (EUR) and Kika Alex-Okoh, Karla Vasquez Suarez, and Alissa Ashcroft (all LEG).*

### 11. To some extent, a SWF’s funding sources would also play a role in determining the

### 11. To some extent, a SWF’s funding sources would also play a role in determining the

### Sovereign Wealth Fund (SWF) design and funding-source implications
- SWFs funded by a commodity benefit from investing in assets negatively correlated to the revenue source to help offset risks from the underlying commodity.
- Investing abroad can ensure economic diversification and help shield the domestic economy from commodity-specific shocks.
- Example contrasts:
  - Norway’s Government Pension Fund Global (GPFG) invests only abroad.
  - Government Pension Fund Norway (GPFN) invests domestically and in the Nordic region.
  - A key difference: GPFN derives its funding from profits for its investment activities, whereas the GPFG’s funding source is oil revenues.
- From a fiscal governance perspective, domestic investments by SWFs could raise governance concerns if those investments are government spending operations that should take place within the budget.
- Operational objective setting: The SAA is expressed in strategic benchmarks allowing for the measurement, attribution, and assessment of returns.

### International best practices and fiscal integration
- Given macro-fiscal implications, SWFs should be well integrated in a country’s overall policy framework to:
  - Ensure consistency between SWF objectives and the country’s overall fiscal and macroeconomic policy strategy.
  - Avoid fragmentation of public spending (e.g., appearance of parallel budgets) and poorly timed saving-investment decisions.
  - Ensure transparency and clear accountability to prevent misuse of public resources.
- Practical example:
  - In Norway the net allocation to the GPFG forms part of an integrated budgetary process, with income to and from the fund flowing directly though the central government budget.

*Source: 1irlea2023002.*

### Considerations for Ireland: rationale for funds and fiscal risks
- Key justification:
  - The likely temporary nature of excess CIT revenues highlights the importance of saving resources today to help smooth public finances in the face of vulnerabilities and upcoming spending pressures.
- Proposed roles for new funds:
  - A savings fund and a counter-cyclical infrastructure, climate and nature fund could mitigate the impact of large swings in CIT revenues on the fiscal position and potential procyclical effects on aggregate demand.
- Challenges linked to CIT funding:
  - Uncertainty about the “exhaustibility” of CIT revenues complicates optimal fund design because, unlike commodity-funded funds, there is no clear horizon for depletion.
  - Even short-term CIT collection amounts are uncertain; risks from a sudden reversal of CIT revenues and impacts on future surpluses must be considered when defining operational frameworks.
  - If CIT revenues are the main source of fiscal surpluses, a key question is whether the time horizon for excess CIT revenues is large enough to sustain a long-term saving fund.
  - Clear provisions are needed in the event of a significant shortfall of CIT revenues to ensure funds remain appropriately funded.
- Mechanisms to increase resilience:
  - Consider flexible mechanisms for transferring resources into the funds anchored within the fiscal framework (as done in Chile and Norway) to lessen negative budgetary impacts during downturns.
  - Specify clear provisions for handling larger windfalls of CIT revenues.

### Fiscal framework, mandates, and reform needs
- Operational rules for the new funds should be consistent with Ireland’s fiscal policy framework and international best practices (namely, the Santiago Principles).
- With the EU fiscal rules unlikely to be binding for Ireland, authorities should:
  - Reflect on an appropriate anchor for their medium- to long-term fiscal framework beyond the current spending rule for 2022–26.
  - Integrate the operation of the new funds within this framework.
- Governance and mandate considerations:
  - Some features of the two new funds overlap with a strategic investment/development fund role; clear delineation of purposes and objectives is important to avoid overlap with each other and with Ireland’s existing Strategic Investment Fund.
  - Close coordination of fund operations within the budgetary process is important to avoid spending fragmentation.
- Limits of funds:
  - The new funds can help strengthen public finances but are not a substitute for reforms.
  - The concentration risk associated with CIT revenues is an important structural vulnerability and reinforces the need to broaden the tax base.
  - Upcoming spending pressures could be large; relying only on future savings may be insufficient.
  - Authorities’ simulations suggest that while a fund is helpful, it will not fully cover the estimated funding shortfall by 2035.
  - The exercise did not yet consider costs from green and digital transitions; decisive reforms are still needed to ensure sustainability of the pension system and safeguard fiscal sustainability.

*Source: 1irlea2023002.*

### Judicial review of investment and planning decisions — key problems
- The planning and permitting system is complex and slow; many developments are subject to lengthy judicial reviews, introducing uncertainty and unpredictable lead times to obtain planning permissions and overcome judicial reviews before construction begins.
- Housing development constraints:
  - High number of permissions to build that fail to materialize; larger scale development applications have predominantly been subject to judicial review, particularly after An Bord Pleanala (ABP) has made its decision.
  - The threat of judicial review and associated potential delay affects all significant development proposals.
- Capacity and case backlog:
  - More Board members were appointed to the ABP, bringing the total number to the statutory limit of fifteen.
  - This increased resource improved ABP’s decision making capacity with the aim to restore more ‘normal’ levels of operation by early 2024.
  - Progress noted: ABP disposed of 369 cases in September 2023, an increase of 148% from cases disposed by the end of September 2022.
- Remaining inefficiencies:
  - Additional legal reform is needed to improve efficiency of the judicial review process and address institutional governance issues within the planning board.

*Source: 1irlea2023002.*

### Planning and Development Bill 2023 — objectives and proposed reforms
- Bill objectives:
  - Bring greater clarity, improve consistency and confidence in the planning system.
  - Enhance ABP governance structure.
  - Introduce reforms to the judicial review process.
  - Governance restructure for ABP (to be renamed An Coimisiun Pleanala (ACP)):
    - Governing executive responsible for day-to-day organization and governance.
    - Decision-making functions on planning permissions led by planning commissioners.
  - Mandatory timelines for ACP planning consent processes to bring greater certainty:
    - Headline time periods proposed by the Bill range from 18 weeks for appeals of decisions of planning authorities to 48 weeks for Strategic Infrastructure Developments.
    - The Bill sets a system of proportionately escalating measures if the ACP does not make decisions within mandatory time limits.
- Reforms to the judicial review process proposed by the Bill:
  - Remove the application to leave stage.
  - Clarify provisions on standing to bring judicial review cases and grounds for review.
  - Procedural changes including a stay of proceedings allowing the ACP to correct errors in its decision-making.
  - Introduction of an environmental legal costs scheme administered by the Minister for the Environment, Climate and Communications (or authorized body) with consultation and consents as specified.
  - Establishment of a dedicated Planning and Environment division of the High Court with specialized judges to address the large number of judicial review cases.

*Source: 1irlea2023002.*

### Specific proposed judicial-review changes and features
- Timeline to bring cases:
  - A timeline to bring cases for judicial review is set at 8 weeks and can only be extended for exceptional reasons.
  - No defined timeline for the duration of the judicial review process under existing arrangements; the Bill requires the High Court to act expeditiously and the Rules of Court contain specified timelines for various stages of the proceedings.
- Standing (locus standi):
  - Current: Substantial interest.
  - Proposed: Sufficient interest defined as being or potentially being “directly or indirectly materially affected”.
  - Except for specified bodies (notably environmental NGOs), applicants must exhaust any available appeal or administrative procedures regarding the decision being challenged.
- Stay of proceedings:
  - The Bill would allow time for the planning board or authority to address identified errors in its decision and to apply to the court for a stay on determination of the judicial review proceedings while doing so.
- Costs regime:
  - Under the Aarhus Convention, costs to challenge planning decisions cannot be prohibitively expensive.
  - The Bill proposes an administrative environmental legal costs scheme to be established; details are yet to be determined.
  - The scheme may involve scale of fees for all applications and is intended to provide a contribution to the applicant’s costs where the applicant is unsuccessful.
  - Frivolous or vexatious applicants are deterred with denial of cost recovery.
- Exemptions and special status:
  - Environmental NGOs (ENGOs) are exempt from the requirement to exhaust all alternative remedies and retain special status under the Bill, aligned to Ireland’s commitments under the Aarhus Convention, subject to certain criteria.

*Source: 1irlea2023002.*

### 21. Ireland’s judicial review of planning decisions is similar to that of other jurisdictions

### 21. Ireland’s judicial review of planning decisions is similar to that of other jurisdictions surveyed

### Comparative framework and key differences
- Differences across jurisdictions often stem from systems of government, statutory definitions, international obligations, or judicial construction.
- Federal/local frameworks:
  - Canada, Australia, and the United States: local government legislation governs land use and planning in federal systems.
  - Ontario (Canada): the provincial land tribunal may hear and determine disputes or challenges to planning decisions before or at the same time as the divisional court.
  - New South Wales (Australia): a special Land and Environment Court has jurisdiction to hear challenges to planning decisions; New South Wales also provides a separate avenue to challenge planning decisions via a merit appeal.
- Scope of review:
  - In all jurisdictions surveyed, courts generally review questions of law regarding the planning authority’s decision rather than questions of fact in judicial review proceedings.
  - Ontario (Canada): under the Planning Act and the Judicial Review Procedure Act, the court looks to the lawfulness, fairness, and reasonableness of administrative decisions.
  - United States: the Administrative Procedure Act specifies cases of unlawful agency action that may be set aside (for example, arbitrary, capricious, an abuse of discretion; contrary to constitutional right, power, privilege, or immunity; in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; without observance of procedure required by law; unsupported by substantial evidence; or unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court (5 USC § 706)).
  - Ireland: the court will consider whether the planning board’s decision was made in accordance with the law, but will not review the merit of the decision.
- Timelines:
  - United States: the National Environmental Policy Act mandates time limits for various forms of environmental reviews; if federal agencies ignore their deadlines, the law provides project developers the right to seek a court order to enforce compliance within 90 days.
- Standing:
  - United States: the Supreme Court has articulated doctrines limiting federal court adjudication of disputes respecting federal agencies (standing, ripeness, mootness). Constitutional standing requires a plaintiff to demonstrate an “injury in fact”, that the injury is “fairly traceable” to the defendant’s actions, and that the injury will likely be redressed by a favorable court decision.
- Costs:
  - Generally, the successful party is often entitled to have legal costs paid by the losing party; this deters frivolous cases.
  - Ireland: judicial review proceedings benefit from costs protection.
  - New South Wales (Australia): the Land and Environment Court Act permits the court to make an order for costs at its discretion.
  - Note: It is difficult to assess the impact of costs protections or lack thereof across jurisdictions.
- Expediency:
  - In all jurisdictions surveyed, courts are intended to decide planning review cases expediently because of the time-conscious nature of these cases and the need to reduce delay.

### Proposed reforms in the Bill and alignment with other jurisdictions
- The Bill’s proposed reforms appear in line with judicial review regimes in other comparable jurisdictions.
- The Bill seeks to clarify key elements of the judicial review process of planning decisions in Ireland, including:
  - requirements for standing (including special status for ENGOs), and
  - the costs regime (providing costs protection in judicial review proceedings).
- To address delays, the Bill provides specific timelines for the determination of cases.
- The impact of these reforms, together with restructuring of the ACP, may help address bottlenecks in the judicial review process and ultimately assist delivery of housing infrastructure and public investment schemes that require ACP approval.
- Caveat: in common law jurisdictions, court decisions determine how statutory provisions are interpreted; similar statutory language may be construed differently by domestic courts.

### Cross-jurisdictional comparison of key elements (Table 3)
- Ireland:
  - Timeline to Bring Action for Judicial Review: 8 weeks
  - Standing: A person with sufficient interest
  - Scope of Review: Question of law
- Australia (New South Wales):
  - Timeline to Bring Action for Judicial Review: 3 months
  - Standing: Any person
  - Scope of Review: Question of law
- Canada (Ontario):
  - Timeline to Bring Action for Judicial Review: 30 days
  - Standing: Any person
  - Scope of Review: Question of law
- US:
  - Timeline to Bring Action for Judicial Review: Absent a specific statutory deadline, actions can be brought within 6 years
  - Standing: Any person who has suffered a personal, legal wrong or adversely affected or aggrieved
  - Scope of Review: Questions of law and questions of fact (to extent facts are subject to trial). Cases are spelled out in statute.
- Notes on standing:
  - Ireland’s “person with sufficient interest” may include ENGOs, which enjoy special status under the Bill, and other unincorporated organizations.
  - Courts in Canada and Australia construe “any person” according to common law doctrines which effectively limit standing to those persons who are aggrieved or otherwise harmed by the decision.

### Key contextual figures and related findings (from broader chapter context)
- Ireland’s stock of FDI in 2022: more than 300 percent of GDP (compared with the euro area’s median of about 60 percent).
- The multinational sector:
  - Studies suggested over one third of employee compensations and more than 80 percent of corporate income taxes in Ireland are generated in the multinational sector.
- Findings from empirical and stylized-fact analysis on “Dutch disease” implications in Ireland:
  - Employment growth in recent years has been broad-based; manufacturing employment growth largely driven by MNEs, but manufacturing dominated by domestic firms did not underperform the euro area.
  - Services employment (excluding foreign-dominated IC sector and financial services) has not yet recovered fully to pre-crisis level and is below the level in the euro area.
  - No obvious sign of “de-industrialization” through the “resource movement” channel in the recent boom.
  - Weekly wage growth in services was very strong before the crisis and accelerated recently after stagnating for several years; this could signal “Dutch disease” but may reflect high productivity growth of MNEs.
  - Real exchange rate appreciation was significant only in the pre-crisis period; almost all the pre-crisis appreciation has been corrected after the crisis.
  - Unit labor cost (ULC) decline has been mainly driven by MNE-dominated sectors; ULC in domestic-oriented sectors in recent years has been broadly in line with the euro area.
  - Overall assessment: it does not appear that cost pressures have weakened the overall competitiveness of the Irish economy via the “spending effect”.

*Source: IMF staff chapter — “Ireland: Judicial review of planning decisions” from the provided content unit.*

### 8. Productivity growth has been entirely driven by MNEs. Ireland’s growth of multifactor

### 8. Productivity growth has been entirely driven by MNEs. Ireland’s growth of multifactor

### A. Stylized facts on productivity dynamics
- Ireland’s growth of multifactor productivity outpaced that of its EA peers in recent years, but this outperformance is mainly driven by rapid growth in sectors dominated by foreign firms.
- The indigenous economy is dominated by small and medium enterprises (SMEs) in traditional sectors that might be far away from technology frontiers and have limited economies of scale.
- Multifactor productivity in sectors dominated by indigenous firms has lagged that of Ireland’s EA peers and has been on a declining path since the GFC (Figure 4).
- Firm-level TFP estimates from the Orbis database confirm the aggregate finding and show that the decline was mainly driven by firms in domestic-oriented services.
- It is concerning that productivity of the indigenous economy has not grown in the past two decades despite the presence of MNEs’ strong knowledge base, talent pool, and R&D capacity in Ireland.

### B. Data and empirical approach
- Dataset constructed with sectoral gross value added (GVA), employment, wage, and labor productivity from 1995Q1 to 2023Q1.
- Sectors classified into those dominated by foreign firms and those dominated by domestic firms following the Central Statistical Office (CSO) method.
- Baseline empirical approach: local projection (Jorda 2005) to evaluate impact of a shock in manufacturing sectors dominated by MNEs on employment in domestic manufacturing and services, wages, and labor productivity.
- Baseline regression form (growth rates): Y_{t+h} - Y_{t-1} = β_h F_t + Σ γ′_{h n} X_{t−n} + ε_{t+h}, where F_t is the quarterly change in gross value added of foreign MNEs; X_t includes lags of the MNE shock, lags of the dependent variable, real GNI* growth, and external demand (weighted average of trading partners’ GDP growth).
- Robustness checks: similar formulation in levels, different sample periods, structural VAR approach; conclusions hold under different specifications, sample periods, and alternative approaches.

### C. Key summary statistics (y-o-y percentage change; sample period labels preserved)
- GVA of foreign manufacturing (1996Q1 to 2023Q1): Mean 7.61; SD 13.2; Min -34.4; Max 45.4
- GVA of domestic manufacturing (1996Q1 to 2023Q1): Mean 2.8; SD 11.2; Min -30.0; Max 42.1
- GVA of information communication (1996Q1 to 2023Q1): Mean 10.9; SD 9.8; Min -14.6; Max 30.7
- GVA of domestic services (1996Q1 to 2023Q1): Mean 3.3; SD 4.0; Min -12.4; Max 12.0
- Employment of foreign manufacturing (1996Q1 to 2023Q1): Mean -0.5; SD 13.2; Min -38.1; Max 62.5
- Employment of domestic manufacturing (1996Q1 to 2023Q1): Mean -0.5; SD 18.3; Min -48.9; Max 93.8
- Employment of information communication (1996Q1 to 2023Q1): Mean 5.1; SD 7.4; Min -6.4; Max 36.3
- Employment of domestic services (1996Q1 to 2023Q1): Mean 3.2; SD 4.2; Min -11.0; Max 16.1
- Labor productivity of foreign manufacturing (1996Q1 to 2023Q1): Mean 14.8; SD 26.0; Min -44.0; Max 150.4
- Labor productivity of domestic manufacturing (1996Q1 to 2023Q1): Mean 6.3; SD 19.3; Min -46.0; Max 80.1
- Labor productivity of information communication (1996Q1 to 2023Q1): Mean 7.2; SD 12.2; Min -18.3; Max 43.4
- Labor productivity of domestic services (1996Q1 to 2023Q1): Mean 0.3; SD 2.5; Min -7.9; Max 5.4
- Modified Gross National Income (GNI*) (1996Q1 to 2023Q1): Mean 3.7; SD 5.6; Min -13.0; Max 17.2
- Trading partner GDP (1996Q1 to 2023Q1): Mean 1.9; SD 2.6; Min -11.7; Max 15.4
- Real Effective Exchange Rate (1996Q1 to 2023Q1): Mean -0.4; SD 4.8; Min -11.2; Max 12.7
- Relative wage of domestic services (1996Q1 to 2023Q1): Mean -1.1; SD 7.8; Min -26.7; Max 28.1

### D. Empirical findings: employment, wages, REER, and productivity spillovers
- Employment effects
  - A one-percentage-point increase in gross value added of manufacturing sectors dominated by foreign firms has a positive but modest impact on employment in manufacturing and service sectors dominated by domestic firms over a five-year horizon.
  - MNEs appear to have some crowding-in effect on certain service sectors such as catering, transportation, and professional services, although the evidence is not very strong.
  - Domestic manufacturing employment experienced growth over the sample horizon after a positive MNE shock; there is no evidence that domestic manufacturing lost employment via a “resource movement effect.”
  - Small impulse responses confirm the MNE-dominated sector only has limited supply-chain linkages with domestic manufacturing firms.
- Wages and real exchange rate
  - Point estimates suggest some upward pressure on relative wages in the services sector (relative to wages in the domestic manufacturing sector) and on the REER over time.
  - The effects on wages and REER are small and statistically insignificant, especially for the REER.
  - No strong evidence that increased MNE manufacturing activities have led to cost pressures; erosion of Ireland’s cost competitiveness due to the spending effect has been somewhat muted to date.
  - Risk remains of rising cost pressures over time if the MNE boom sustains its momentum.
- Labor productivity spillovers
  - Increased MNE manufacturing activities do not appear to have improved labor productivity in the domestic manufacturing sector in any economically meaningful or statistically robust way; point estimates imply some positive effect after the third year but the effect is small and statistically weak.
  - In domestic services, MNE activity seems to have had some negative spillovers to labor productivity initially, with the cumulative effect becoming somewhat positive over time.
  - Overall, dynamic responses point to very weak productivity spillovers from the MNE sector to the domestic manufacturing and services sectors.

### E. Interpretation and potential explanations
- Ireland has not shown clear symptoms of the “Dutch disease” in its post-crisis period.
- Possible reasons for limited resource movement and spending effects include:
  - The nature and scale of Ireland’s FDI boom may be quite different from natural resource booms.
  - Ireland’s fiscal prudence since its crisis, which might have prevented excessive wage pressures in the public sector and broader domestic demand pressures.
  - Ireland’s flexible and inclusive labor market, which might have absorbed some wage and price pressures, as exemplified by the influx of foreign labor.
- Despite MNEs being pivotal in the Irish economy, they have limited linkages with domestic firms; the weak “crowding-in” or “Norwegian blessing” effect suggests the indigenous economy may be missing out on an important growth engine.

### F. Policy implications and recommendations
- Facilitate links between MNEs and domestic firms via:
  - Supply-chain linkages.
  - Labor mobility.
  - Innovation cooperation.
- Such policies could help raise productivity of domestic firms and the overall resilience of the economy.
- Further analysis is warranted to thoroughly explain limited resource movement and spending effects and to design effective policies to enhance knowledge diffusion and talent mobility from large MNEs to domestic firms.

*Source: IMF staff analysis and estimates from the chapter “8. Productivity growth has been entirely driven by MNEs. Ireland’s growth of multifactor” (1irlea2023002).*

### References

### 1irlea2023002 - References

### Key bibliographic sources cited
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- Allcott, H. and Keniston, D., 2018. Dutch disease or agglomeration? The local economic effects of natural resource booms in modern America. The Review of Economic Studies, 85(2), pp.695-731.
- Bjørnland, H.C. and Thorsrud, L.A., 2016. Boom or gloom? Examining the Dutch disease in two‐speed economies. The Economic Journal, 126(598), pp.2219-2256.
- Bjørnland, H.C., Thorsrud, L.A. and Torvik, R., 2019. Dutch disease dynamics reconsidered. European Economic Review, 119, pp.411-433.
- Corden, W.M. and Neary, J.P., 1982. Booming sector and de-industrialisation in a small open economy. The Economic Journal, 92(368), pp.825-848.
- Department of Finance., 2014. Economic Impact of the Foreign-owned Sector in Ireland.
- Di Ubaldo, M., Lawless, M. and Siedschlag, I., 2018. Productivity spillovers from multinational activity to indigenous firms in Ireland (No. 587). ESRI Working Paper.
- Di Ubaldo, M. and Siedschlag, I., 2022. Could spillovers from multinationals affect the trade activities of local firms?. Economics Letters, 221, p.110899.
- Díez, F.J., Fan, J. and Villegas-Sánchez, C., 2021. Global declining competition?. Journal of International Economics, 132, p.103492.
- Gylfason, T., Herbertsson, T.T. and Zoega, G., 1999. A mixed blessing: natural resources and economic growth. Macroeconomic dynamics, 3(2), pp.204-225.
- Jordà, Ò., 2005. Estimation and inference of impulse responses by local projections. American economic review, 95(1), pp.161-182.
- Krugman, P., 1987. The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher: Notes on trade in the presence of dynamic scale economies. Journal of development Economics, 27(1-2), pp.41-55.
- Levinsohn, J. and Petrin, A., 2003. Estimating production functions using inputs to control for unobservables. The Review of Economic Studies, 70(2), pp.317-341.
- Li, D., Plagborg-Møller, M. and Wolf, C.K., 2022. Local projections vs. vars: Lessons from thousands of dgps (No. w30207). NBER Working Paper 30207.
- Mehlum, H., Moene, K., Torvik, R., 2006. Institutions and the resource curse. Econ. J. 116 (508), 1–20.
- Neary, J.P. and Van Wijnbergen, S., 1986. Natural resources and the macroeconomy.
- Neary, J.P. and Purvis, D.D., 1983. Sectoral shocks in a dependent economy: long-run adjustment and short-run accommodation. In Long-Run Effects of Short-Run Stabilization Policy (pp. 97-121). London: Palgrave Macmillan UK.
- Olley, S. and Pakes, A., 1996. The dynamics of productivity in the telecommunications equipment industry. Econometrica, 64(6), 1263-1297.
- Papa, J., Rehill, L. and O’Connor, B., 2018. Patterns of firm level productivity in Ireland. OECD WP.
- Plagborg‐Møller, M. and Wolf, C.K., 2021. Local projections and VARs estimate the same impulse responses. Econometrica, 89(2), pp.955-980.
- Sachs, J.D. and Warner, A., 1995. Natural resource abundance and economic growth. NBER Working Paper 5398.
- Torvik, R., 2001. Learning by doing and the Dutch disease. European economic review, 45(2), pp.285-306.
- Tørsløv, T., Wier, L. and Zucman, G., 2023. The missing profits of nations. The Review of Economic Studies, 90(3), pp.1499-1534.
- Van Wijnbergen, S., 1984. Inflation, employment, and the Dutch Disease in oil-exporting countries: A short-run disequilibrium analysis. The Quarterly Journal of Economics, 99(2), pp.233-250.

### Housing affordability in Ireland — principal findings (Introduction and Section B)
- Historical trajectory:
  - Stock of housing declined after the GFC; only 11,000 new homes built in 2014 compared to 90,000 in 2006.
  - Post-GFC recovery in house prices driven by limited housing supply rather than rapid credit growth.
- Recent dynamics:
  - House prices increased by around 8 percent y/y in 2021.
  - Construction activity picked up strongly after reopening in 2022; both completed and commenced units increased substantially, but housing stock has hardly kept pace with significant population growth, including as a result of Russia’s invasion of Ukraine.
  - Construction input prices accelerated sharply; higher interest rates and inflation have reduced households’ purchasing power and capacity to borrow.
- Affordability measures and assessments:
  - Price-to-income (PTI) and price-to-rent (PTR) ratios have risen; in Ireland PTI is about 1/3 of its pre-crisis peak while PTR is already about 50 percent of its pre-crisis peak.
  - ESRB estimates range from 15 percent undervaluation to 5 percent overvaluation (ESRB, 2023).
  - IMF staff estimates as of 2022:Q4 about 5 percent below the equilibrium value.
  - Affordability index by Biljanska et al. (2023) places Ireland among the worst performing EA countries, with the index value at about 75.
  - An average Irish household would need to save for more than 15 years to purchase a 100 square meter unit (EC, 2017 and OECD, 2022), the highest value among the EU countries.
- Broader consequences:
  - Worsening affordability can lead to more precautionary savings, misallocation away from productive investment, weakened aggregate demand, constrained firm ability to attract skilled workers, upward pressure on wages, and distributional impacts on lower-income households.
  - Financial stability risks are limited by large household savings, stronger bank capital positions, implementation of macroprudential measures, and constrained housing supply.

### Drivers of demand and supply (Section C)
- Demand-side drivers:
  - Irish economy growing above EA average; income per capita among the highest in the group.
  - Continued multinational interest requires additional labor, contributing to dynamic population growth.
  - Declining household size: from approximately 4 persons in 1980 to 2.7 persons in 2022; EU average is 2.2 persons.
  - Policies/schemes like Help-to-Buy and First Home will continue to drive demand among first-time buyers.
- Supply-side constraints and barriers identified by independent reviews:
  - Regulations, complex and slow permission and planning systems, including impacts from EU Directives (e.g., Aarhus Convention), and frequent judicial reviews.
  - Constrained viability of high-density apartments due to higher uncertainty and risks; domestic banks less willing to finance residential projects, increased dependence on international investors and non-bank lending.
  - Construction sector dominated by small, low-productivity firms: 97 percent of construction firms employ less than 10 people (Norris, 2023).
  - Skills and labor shortages: employment in construction was 6.5 percent in 2022, against 11 percent in 2007.
  - Limited land availability, especially in urban areas; the National Planning Framework focuses on consolidation and increasing density.
  - Overregulated rental market: rent caps have provided short-term protection but had unintended long-term effects on investment, quality, quantity of supply, and labor mobility (Causa and Pichelmann, 2020).

### Policy responses and instruments deployed (Section C, paragraph 9)
- Housing for All program:
  - Aim: increase supply by about 300,000 new units by 2030 (an average about 33,000 units each year), including 54,000 affordable homes.
  - Measures: improve zoning, planning, land availability, funding, productivity of construction sector, higher investment in social housing; programs to facilitate access to financing for first-time buyers (First Home and Local Authority Home Loan) and tax refunds (Help-to-buy).
- Temporary measures improving viability:
  - Croí Cónaithe subsidises projects with building costs exceeding the market price, particularly for build-to-sell apartments.
  - Tosaigh supports approved projects facing viability issues.
  - Temporary waiver on development levies reduces overall cost and improves project viability.
- State-provided development finance:
  - Building Finance Ireland (HBFI), the National Asset Management Agency (NAMA), the Irish Strategic Investment Fund (ISIF), and the LDA provide development financing, including for apartment developments and social and affordable housing schemes.
- Residential Zoned Land Tax:
  - Rate: 3 percent; intended to improve land availability and activation of unused sites.
- Skills, productivity, and matching initiatives:
  - Build Digital and Future Building projects support adoption of digital skills and search-matching between employers and jobseekers in the construction sector.
- Rental market and vacancy measures:
  - Rent controls from 2016 and 2021 capped rent increases at 4 and 2 percent per year, respectively.
  - Vacancy Reduction efforts include grant funding to bring underutilised units back into supply.

*Source: 1irlea2023002 - References (PDF chapter) — content as provided.*

### 10. Record investment and a growing number of new home completions this year will not

### Record investment and a growing number of new home completions this year will not

### Recent delivery, targets, and the housing gap
- 22,400 homes have been completed to end-September 2023.
- Q3 2023 was the third successive quarter where rolling 12 month completions exceeded 30,000.
- Above 7,000 units were commenced in the first quarter (the highest number of units commenced in any first quarter).
- Permissions within the system are about 100,000 units.
- Delivery this year is forecast to exceed Housing for All targets and may be close to 32,000 units.
- Recent forecasts suggest delivery for 2024 will also exceed target and potentially reach 35,000 or so units.
- Despite the uplift, housing construction has hardly kept up with population growth over the last decade, producing a large housing gap and growing affordability concerns.
- Assuming the Irish population will continue to grow by 0.87 percent each year:
  - Completing about 30,000 units each year would be just enough to increase dwellings per thousand inhabitants from the current 415 to its 2011 level of 437 by 2030.
  - To reach the EU’s 2020 average of 495 units per thousand inhabitants by 2030, the average annual completion of units would need to double to reach at least 60,000 units per year.

### Role and trade-offs of demand-side measures
- Demand-side measures can support affordability in the short term, especially if targeted to the most vulnerable tenants and buyers.
- Even well-targeted subsidies tend to be effective only in the short term, as they at least partially contribute to demand pressures and translate to higher house prices or rental cost over the medium term.
- Demand-side housing-related benefits include:
  - Housing vouchers or housing subsidies to low-income households.
  - Grants, tax relief, or accommodative financing terms to first-time homeowners.
- Caveats:
  - Demand-side interventions need to be limited in size and narrowly targeted at specific disadvantaged groups, because they tend to fuel demand and potentially exacerbate housing market imbalances.
  - As building rental accommodation remains prohibitively expensive for the foreseeable future, policy interventions will likely be needed for years to come.

### Structural supply-side policies (recommended emphasis)
- Structural supply-side policies need to play a dominant role to close the housing gap and restore affordability sustainably.
- Key focus areas:
  - Promote productive use of land, planning, and zoning.
  - Ensure well-integrated urban planning considering proximity to jobs, access to transportation networks, and access to social and health services.
  - Policy coordination across state and municipal levels and participation from private sector stakeholders (industry and developers).
- Timing:
  - Supply-side measures tend to take significant time to take effect.

### Reducing policy complexity, improving transparency, and judicial reform
- Reducing complexity and improving transparency and predictability of the policy environment is key to unleash construction potential and attract investors.
- Changes to housing policy, including rental regulations or taxation, can impact investment activity and viability of housing projects.
- Housing developments can be subject to judicial review; reforming Ireland’s slow and complex judicial review system is required.
- Strengthening processes would help reduce construction delays:
  - More efficient licensing.
  - Time-limited development planning.
  - Modernized approval system.
- The Planning and Development Bill 2023 aims to address many of these issues (processes and parameters of planning judicial reviews).

### Labor, firm entry, financing, and productivity in construction
- Policy actions to reduce barriers and increase competition:
  - Remove barriers to entry and attract skilled labour (architects, engineers, construction workers).
  - Facilitate access to financing, especially for small builders and developers.
  - Create mechanisms to provide affordable, accessible, and timely financing for construction projects to improve competitiveness of small builders and avoid unnecessary delays.
  - Incentivise adoption of digital technology and advanced automation to reduce reliance on labour and improve productivity.
- Current position:
  - Construction sector productivity is at the EU average but well below the level of the EA peers.

### Land use regulation and upzoning
- Stricter land use regulations are associated with less construction, lower housing supply, and reduced affordability.
- Reforming land use regulations is imperative where tight zoning prevents high-density housing; benefits include:
  - More efficient use of land.
  - Reduced urban sprawl.
  - Preservation of green spaces and natural habitats.
  - Lower infrastructure costs on roads, utilities, and public transportation.
- When local incentives are not aligned with national housing priorities, central government action may be needed.
- Example of international reform:
  - New Zealand amended its Resource Management Act in 2021 to allow higher-density housing without local government consents, established a Housing Acceleration Fund, and passed zoning reform to permit medium-density housing in major cities; this built on earlier upzoning success in Auckland.

### Rent regulation and buy-to-let supply
- Caps on rent increases were introduced in 2016 and further tightened in 2021.
- Result: reduction in available rental housing stock and quality of rental housing.
- In 2018, about one third of respondents identified complexity and restrictiveness of rent legislation as a primary factor hampering buy-to-let investments (Residential Property Price Survey SCSI/CBI, 2018).
- International experience suggests increasing supply is more effective for affordable rents than rent controls (OECD, 2022).
- Recommendation:
  - Replace rent controls with well-targeted budget support for poor households.
- Note: Excessive regulation may contribute to non-compliance and create dual markets as participants seek to evade reduced rates of return due to rent regulations.

### Social housing and public investment
- Investment in social housing can ease supply bottlenecks while improving affordability for low-income households.
- Ireland’s Housing for All plan includes:
  - Delivery out to 2030 of 90,000 social homes, 36,000 affordable purchase homes, and 18,000 cost rental homes.
  - Supported by an investment package of over €4bn per annum, through a combination of €12bn in direct Central Government Exchequer funding, €3.5bn in funding through the Land Development Agency, and €5bn funding through the Housing Finance Agency.
- Delivery performance:
  - Across 2021 and 2002, approximately 19,500 social homes were delivered through build, acquisition and long-term leasing programs in Ireland.
  - With strong delivery expected also in 2023, overall delivery across 2021 to 2023 will be approximately 30,000 social homes.
- Advantage of social housing vs allowances:
  - Social housing expands supply without fuelling demand (example cited: Canada’s Rapid Housing Initiative expecting at least 6,000 new affordable housing units).

### Taxation and local property tax considerations
- Ireland’s local property tax has become a stable and noticeable source of local government revenue since introduction in 2013.
- The 2021 amendment established that property valuations will be reviewed every four years.
- Measures to shield low-income households included increasing the income threshold for tax deferrals and reducing the interest rate on deferred taxes.
- Ireland’s property tax revenue remains substantially smaller than EU peers; recommendation:
  - Tax rate could be gradually increased while ensuring adequate social protection.
- Tax policy can affect housing dynamics; international examples:
  - New South Wales plans to give first home buyers the option to pay recurrent annual land taxation in lieu of regular stamp duty to lower up-front costs.
  - Canada’s 2022 Budget proposed to fully tax persons who sell a property held for less than 12 months on their profits as business income.

### Macroprudential policy impacts
- Macroprudential policy’s prime objective is to mitigate systemic risk and safeguard financial stability, but it may impact housing affordability through access to credit.
- Tools and effects:
  - LTV and DTI ratios can limit the amount of credit households can borrow for housing purchases and thus affect affordability.
  - Macroprudential measures can be targeted (for example, tighten LTV only for specific risky borrower types or for investment/speculation purchases).
- Limitations:
  - Macroprudential policies are not a silver bullet for housing affordability and should be used predominantly to contain systemic risks rather than substitute for targeted affordability measures.
  - Over longer-term, tighter macroprudential measures can ease affordability by containing credit-driven price inflation (ESRI estimate: house prices would have been up to 9 percent higher in Ireland in recent years if not for the Central Bank of Ireland’s macro-prudential rules).

*Source: IMF staff chapter on Ireland housing policy and recommendations (excerpts).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1irlea2023002.pdf_