Michael McGrath (Cork South Central, Fianna Fail)
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Fiscal multipliers are an important consideration when preparing economic projections and estimating the impact of public expenditure on economic growth. However, isolating the multiplier effect is complicated by the nature of public investment. Public investment does not occur in a vacuum, but rather takes place at a particular point in time against the backdrop of a range of economic and social factors. These contextual factors can play a major role in shaping the magnitude of the fiscal multiplier. The size of a fiscal multiplier also varies by country and over time. For example, an economy’s openness to trade, labour market rigidity and debt levels all factor into the size of the fiscal multiplier. Multipliers can also vary on a project by project basis, depending on the import intensity of a project. The Department therefore takes a judgment based approach, taking these specificities into account.

Indeed, there are a broad range of estimates for Ireland’s fiscal multiplier depending on the approach taken. Estimates for the multiplier for investment expenditure have varied significantly from 0.6 (Varthalitis (2019)) to 1.4 (Ivory et al (2019)). These results differed by the models used across studies and time sampled for analysis.

While investment does have short term economic benefits via a multiplier effect, this Government is also investing to support our long term societal needs and climate ambitions. This includes meeting the significant investment required in sustainable technologies and infrastructure, such as renewable energy and compact development projects, which will have wider benefits into the future.