Options for Strengthening Ireland’s Fiscal Framework

Ireland’s reliance on corporate income tax (CIT) receipts from multinational enterprises, concentrated in a small number of companies, presents significant risks to the budget. The uncertain nature of this revenue calls for a robust fiscal framework to safeguard public finances. This paper proposes strengthening the national fiscal framework by establishing a prudent medium-term debt anchor and an expenditure rule to guide the annual budget process. We first establish a prudent debt anchor for Ireland by calibrating CIT shocks and simulating possible debt trajectories. Second, we propose an operational rule based on multi-year expenditure ceilings. The ceilings are calibrated such as to stabilize debt at the anchor level while accounting for the economy’s cyclical position. Although tailored to Ireland, the methodology employed has broader applicability for designing effective fiscal rules.