How Much Does Ireland Produce?

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Can Ireland pay what it owes under any policy regime? One reason to doubt it is that as Simon Johnson argues, a lot of Ireland’s GDP is basically tax evasion rather than production:

At least 20 percent of Ireland’s G.D.P. is from “ghost corporations” that have little or no real activity in Ireland

. Corporate taxes are set at 12.5 percent, but leading global corporations are able to construct complicated schemes involving other offshore tax havens that reduce their effective tax rates to the low single digits.

The

Irish insist that raising the corporate tax rate would not generate additional revenue – effectively acknowledging the point that this part of the economy cannot be taxed as part of the anti-crisis policy mix

. You will know that reality has finally set in when all the relevant numbers are presented relative to G.N.P., not G.D.P.

When EU authorities try to press Ireland to raise the corporation tax as part of the terms of a bailout deal, this isn’t really about increasing Irish government revenue. It’s just that the Irish government has, for years, been annoying its OECD peers by operating as a tax haven. Now that Ireland’s in a weak position, people want it to act like a better global citizen. But if Ireland actually can’t pay its debts, the country is arguably better off acknowledging that sooner rather than later. The alternative is to go through a period of EU-sponsored “extend and pretend” in which policy concessions are extracted and then Ireland defaults anyway.

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