Ireland’s Low Corporate Tax Rate Leads to Prosperity

July 6, 2005

Ireland’s economy has undergone a remarkable transformation over the past two decades. A recent New York Times op-ed by Thomas L. Friedman attributes Ireland’s economic growth in part to the country’s low corporate tax rate.

Ireland is currently the second richest country in the European Union, with a per capita GDP higher than that of Germany, France and Britain. But in the mid-1980s, the economy was faltering, college graduates were emigrating, and the outlook was bleak:

“We went on a borrowing, spending and taxing spree, and that nearly drove us under,” said Deputy Prime Minister Mary Harney. “It was because we nearly went under that we got the courage to change.”

This change included a corporate tax rate cut to 12.5 percent, far below the rest of Europe, which attracted foreign investment. Nine of ten of the world’s top pharmaceutical companies and seven of the top ten software designers currently have operations in Ireland.

In 2001 the Tax Foundation hosted a delegation of congressional tax staff on a European tax conference that included a meeting with officials from Ireland’s Industrial Development Agency, who explained that the corporate tax rate cut had stimulated economic growth and new foreign investment. Read Tax Foundation President Scott Hodge’s description of the trip.

While some of Friedman’s suggestions are debatable (for example, that free college education is conducive to economic growth), he accurately describes two important aspects of the Irish transformation:

[M]ake your corporate taxes low, simple and transparent; open your economy to competition … and you, too, can become one of the richest countries in Europe.

Click here for more on tax reform in Ireland and other OECD countries.


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