KEY ISSUES OF COST-BENEFIT METHODOLOGY FOR IRISH INDUSTRIAL POLICY. General Research Series Paper No. 172, 1998

Industrial development policy in Ireland has long been characterised by its reliance on both discretionary and non-discretionary incentives. The former includes a range of grants for new investment or expansion projects in manufacturing and certain internationally traded service sectors. The latter features a low rate of corporation profits tax rate applicable (up to now) to essentially the same sectors (though the profits tax rate will soon be unified at a low rate for all sectors). Although, like its predecessor export sales relief, the regime does not discriminate between foreign-owned and indigenous firms, it was probably always envisaged chiefly as a mechanism for inducing an inflow of foreign direct investment. The low tax rate, combined with international tax treaties, is of great advantage to US and other firms with unsheltered foreign tax liabilities; the discretionary grants enable the Irish development agencies to compete with other possible destinations for internationally mobile investment projects. The success of the policy is evidenced by the remarkably high share of foreign-owned companies in manufacturing whether measured by employment (45 per cent) or output (70 per cent)