Brief Note on Matt Yglesias on Ireland

by Reihan Salam

Matt writes:


Nassau County (like, say, California) is a very rich place and could afford to support a very large public sector if voters were willing to pay the taxes. That’s not to say they necessarily should want this, but Texas shows you can be rich and get by with low taxes and low services while Scandinavia shows you can be rich and get by with high taxes and high services. What you can’t do is repeal math or have a dysfunctional political culture.

Ireland, though, just doesn’t have the money. Households couldn’t pay back debts to banks, so the government said it would assume the debts. But the government doesn’t have the money either since its revenues come from taxing the very same households who can’t afford the debts in the first place. 

I definitely take Matt’s point, but as he knows very well the Scandinavian trick depends in no small part on regressive consumption taxes financing a progressive transfer regime. And I’d also note that Ireland has a notoriously inefficient public sector — even more inefficient than the U.S. public sector, making it an extreme outlier among the advanced economies. There is a potential “free lunch” to be had in aggressively reforming the Irish state.  

Also, I’ll note that this post of Matt’s is astute.