Professor John McHale:

On the multiplier question, as the Deputy will have seen, the council provided quite a comprehensive treatment of multipliers here, including a review of related literature, both domestic and international. We also have reviewed the recent debate that has been taking place between the financial institutions about multipliers that was kicked off by the IMF analysis indicating it may have been underestimating multipliers for a number of countries. Moreover, because of the uncertainty that exists in respect of multipliers, we have carried out a sensitivity analysis on the budgetary projections, based on alternative multipliers. Consequently, while based on our reading of the evidence, we saw no reason to think the overall deficit multiplier of 0.5 was not in the right ballpark. I acknowledge there always will be uncertainties around that but even in the case of the IMF analysis, its analysis did not point to an underestimation in the Irish case. In addition, while recognising that at present there are different factors affecting the Irish multiplier, a review of the literature shows on the one hand that economies in recession and coming out of financial crises tend to have higher multipliers. On the other hand, countries with high debt levels, particularly countries undergoing a creditworthiness crisis, tend to have low multipliers. I refer to a highly influential study that has got a lot of attention for showing that multipliers are larger in recession. It actually shows the net effect of having a 100% debt-to-GDP ratio and being in a recession is a multiplier of close to zero. Based on the totality of the evidence, however, I do not believe this to be true. I believe there truly is a positive deficit multiplier in the Irish case. However, looking carefully at the evidence, limited though it is in terms of specific studies focusing on Ireland, there did not appear to be a reason to believe there was an obvious bias in terms of the estimate of a multiplier of 0.5. However, there is huge uncertainty, which is the reason the sensitivity analysis was important, in order that people who had different views could plug their multiplier in there and find out what would be the effects.