"Fiscal Adjustment in Ireland in the 1980s": A Comment*

T he Irish experience with fiscal adjustment is interesting, not just for a domestic audience but also for an international one. I f one confines the comparison to the OECD countries, the Irish experience can be seen as part of a general trend towards fiscal consolidation, in which i t stands out in one major respect. Whether one focuses on 1979 (a cyclical peak in OECD activity) or 1982-83 (the trough of the cycle) as a starting point, Ireland had by 1990 experienced the largest fiscal adjustment of all OECD countries in terms of the size of the swing in the general government budget deficit/GDP ra t io. 1 The only other countries to approach i t are Japan, Denmark and Sweden. Why Did Ireland Embark on Fiscal Adjustment? The paper opens with a provocative question for students of recent Irish political and economic history: why did Ireland make this dramatic fiscal adjustment? Professor Honohan's preferred answer is that the prevailing fiscal path at the beginning of the 1980s was unsustainable and, more impor tantly, was recognised as such by the electorate and the politicians. I t is a pity that the paper does not go a bit deeper into the reasons why the fear of a solvency crisis apparently gripped the public imagination in the early 1980s. 1. These data are drawn from the National Accounts of OECD Countries and are based on the standardised System of National Accounts (SNA). *The views expressed here are my own and should not be held to represent those of the O E C D. I would like to suggest some partial answers to the question of why Ireland pursued the path of fiscal rectitude. First, there was a common recognition among most OECD countries of the need for fiscal adjustment after the second oil shock and the sharp downturn in 1981-82; ample testimony of this shift in perception — which was not always translated into rapid reality — can be found in the OECD Ministerial Communiques of the period. Thus, Ireland was not unique in pursuing fiscal adjustment. The fact that most of the dramatic improvement in the Irish fiscal outlook occurred post-1985 is also typical of other OECD countries — as a recent paper by an OECD col league, Howard Oxley, and myself demonstrates (Oxley and Mart in, 1991