Economics Report: Macroeconomics, International Finance and Ireland

This report provides an in-depth analysis of three major economic events: the 2007/9 financial crisis, Trump's announcement of tax cuts, and the impact of the COVID-19 pandemic. The first event examines the causes of the 2007 financial crisis, including the subprime mortgage crisis, and its impact on the Irish economy, detailing government responses and macroeconomic variables. The second event explores the implications of Trump's tax cuts on Ireland's economy, considering the country's low corporate tax rate and its attractiveness to foreign investment. The third event assesses the impact of the COVID-19 pandemic on the global economy, with a specific focus on Ireland, including its response, the economic decline, and the challenges it faces. The report highlights the interconnections between these events and their combined effect on the global economic landscape, with a particular focus on Ireland's economic performance and its responses to these crises.

Running head: ECONOMICS
ECONOMICS
Name of the Student
Name of the University
Authors note

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Table of Contents
Event 1.................................................................................................................................2
Event 2:................................................................................................................................4
Event 3:................................................................................................................................5
References............................................................................................................................9

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Event 1
The financial crisis in 2007 was the result of the trust-break which took place between the
banks just before the financial crisis that happened in 2008. The reason was the subprime
mortgage crisis, which occurred due to the unregulated utilization of derivatives. It includes
initial warning signs, reasons, and breakdown signs. U.S.Treasury and Federal Reserve took the
necessary steps to prevent the collapse of the economy (Hein 2017). Regardless of these efforts,
financial crisis let to the"Great Recession" –
 The"subprime mortgage crisis" began when the industry's bubble concerning the asset busted
in 2007. And the 2007 financial crisis steered in the 2008 Great Recession.
 In the year before the financial crisis materialized, the values of houses increased, and
mortgage rates were low; hence the houses were acquired not for living but just for the sake
of investment.
 Financial industries invested heavily in"mortgage-backed derivatives" and therefore, the
housing industry's recession converted into the financial industry's devastation.
 Government entities, including Fannie Mae, started providing guarantees for mortgages even
though they being the subprimes or those who have given loans to people who usually would
not qualify for the loans.
The Irish economy (Republic of Ireland) expanded swiftly from 1995 to 2007 because of
the low rate of corporate tax, low ECB interest rates and other factors such as surveillance of
banking supervision, and anti-corruption systems prevailing in Ireland. It was Europe's poorest
country in the early 1980s, but by 2007 it has become reached on top by becoming one of the
richest countries among ten countries in OECD. In this period, the economy advanced due to

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strong inward investment by foreign MNCs because of the low corporate tax rate and skilled
labour. Multinational companies like Google and Microsoft are operating from Ireland. The
country also attracted pharmaceuticals firms like Glaxo Smith Kline. Due to the existence of the
MNCs, GDP was higher than the GNP caused by the significant payment transfer of profit back
to the original country.
Post-crisis Irish banks were overexposed to the property market and arose under extreme
pressure in September 2008 because of the global financial crisis of 2007-08. The foreign
borrowings increased from € 15 billion in 2004 to € 110 billion in 2008. The Irish economy and
its finances showed signs by the end of 2007 of the forthcoming recession. There was an increase
in Government deficits, unemployment and the closure of many businesses. It also led to the
falling of the"Irish Stock Exchange" and which caused many immigrant employees to leave the
country. In2009's first quarter the GDP declined by 8.5% as compared with the previous year,
and GNP fell by 12%. Unemployment which is one of the macroeconomic variables – increased
upto 11.4%, which was previously 8.75%. The unemployment rate was 4.2% in 2007. The Irish
economy was among the nations which were hit hardest by the 2007/8 economic crisis.
After the global financial crisis, the E.U. provided financial support to Ireland by the
provision of € 85 billion to them. The E.U., through EFSF; European financial stability
mechanism, bilateral loans from the U.K. and Sweden and through IMF, provided the support
based on particular conditions. The fiscal measures were – (i) taxation, (ii) increase in excise and
other taxes, (iii) increase in carbon-tax, (iv) to reduce general tax expenditures, (v) decreasing
pension tax relief and deductions, (vi) reforms in capital gains and acquisitions taxes. It also
stated the introduction of a Fiscal Responsibility law consisting of mid-term expenditure
framework. The Government thought of establishing a budgetary advisory council for

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conducting an independent assessment of the budgetary situation and forecasts of the
Government(Hardiman 2010).
Event 2:
The announcement made by Trump is one of the greatest change in the system of U.S. tax
over decades. The decision has been made to cut the rate of corporate tax from 35% to 15%
having an effort to unleash their economic growth (Auerbach 2018). The decision tends to pose a
threat on Ireland who offers to foreign companies and more than that to U.S. companies which
stands to have a strong presence in the Irish economy. Besides, such happenings can surpass the
competitive advantage of Ireland on corporate tax.
The governments of different countries are determined about attracting foreign direct
investment (FDI). Foreign Direct Investment helps in the creation of new jobs, implementation
of new technologies and expand overall growth and offers more employment opportunities.
Policies related to different taxation can also hold up direct investment abroad because such
investment makes easy access to the cost of production in economies and foreign markets
intending to expand their net domestic income. Trump's decision regarding the lowering of taxes
for corporations is mended to expand their economic again.
Ireland is having a rate of tax at 12.5%, which is one of the lowest among those in all the
developed countries (Davies, Siedschlag and Studnicka 2016). The economy in Ireland is
experiencing a booming economy as the gross domestic product of the country was increased
and marked at a rate of 26.3% in 2015, which is a staggering value to be observed. Different
companies have their cooperation with the country Ireland such as Apple, Google, and Microsoft
having subsidiaries in the respective country for grabbing the advantage of the rate of taxation of

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it and its permissive tax code. Hence, the reason behind the good performance level in Ireland is
mainly due to the low rate of corporate tax (Howard 2019). Besides, it has been seen that the
corporate tax rate of Ireland has played a vital role in the attraction of foreign direct investment
in the country. The direct tax legislation of Ireland remains to be unaffected by BREXITmost
probably and creating the opportunities to invest in Ireland and ensuring advantages from its
E.U. membership (Freedman 2017).
The economy of Ireland is not fully dependent on the U.K., but they are one of the closest
economic partners. The changes in tax rate system of the U.S. can probably influence the
relationship between the U.K. and Ireland. Despite having a high tax rate all over the developing
countries, the United States has been a hub of many companies. The country is having a large
number of willing investors and exceptionally productive workforce. The announcement of
massive tax cuts by Trump can lead to tax implications for taxpayers in Ireland, including
investors, particularly for those where there is a close business relationship with the U.K.
The scope of change in tax regime would show the exit of U.K., because of the existence
of firm cooperation that exists between U.S. and U.K.Such alliance between two countries will
attract U.K. companies to settle in the U.S. and spend more on research and development and
enhancing their growth.
Event 3:
The outbreak of Coronavirus has been recognized as a global pandemic by the World
Health Organization due to the enormous impact on individual's lives, communities, and
families. These have brought about a significant challenge worldwide, and countries are
addressing alternative measures to curb the situation to normal. Its breakthrough was initially

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reported in China, of which it gradually spread to other nations and all over the world now. Due
to the nature of spread from one person to another quickly, it becomes a severe issue to the lives
of humans by impacting negatively to their socio-economic lives. It is worth noting that the crisis
has already transformed into the labour market and economy, affecting adversely not only the
supply of commodities but also the demand patterns. Following border closure, travel bans, and
stipulated measures on quarantine, most of the employees are unable to report to their work
stations impacting negatively to their incomes, more specifically, the casual and informal
workers.
Presently, the most affected nations are Italy, America, France, and Spain. The virus has
hindered and even stopped the working of several industries and trade activities, thus lowering
the country's economic growth. This was evidenced by the increment of the underemployment
and unemployment cases in the wake of the spread of the virus. With the first case reported in
China, they were able to accept and acknowledge the fact that the pandemic has drastically
affected their rising economy to a large extend. This is because the nation had to apply
appropriate measures to curb the spread by stopping business operations and lockdown. The
industrial and manufacturing sector also suffered a great deal due to the large lay off costs while
the exports and imports were put on a halt as well. To curb the spread of the pandemic, countries
need to invest more in healthcare facilities and supplying foods to citizens which could be used
for economic, industrial and infrastructural development and growth of the nation as a whole.
The Organization of Economic Co-operation and Development (OECD) argues that
firms that depend on direct contact with clients such as the accommodation and food services,
retail services, airlines, real estate agents, and Tourism happen to be hit more. Sustaining
continuous business operations of this kind happens to be difficult for small and medium

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enterprises to survive, resulting from collapsing. In that, most of the economies mainstream of
this effect emerges from the hit to productivity in wholesale and retail trade. In such a case, due
to variation in the timing of the initial impact on output across all economies of scale, there will
be an alteration in reflecting in the schedule and extend of restraint measures. A good example is
China, on which the peak adverse impact is on output is already past with some lockdown
measures being alleviated.
According to the World Health Organization (2020), the country of Ireland is less
affected. However, the Government has formulated and implemented appropriate policies and
strategies to fight against the spread of the Covid19 pandemic. Currently, there have been fewer
reported cases of casualty arising from the Coronavirus. In any case, the epidemic hits the nation
at a comparatively less degree; the Government has an adequate strategy to fight against. This
will mean the country's economy will also be less affected as compared to other nations across
the globe. Even though the international trade and commerce concerning other countries have
haltered their operations except on essential goods, the economy of the country will still register
a decline in its activities.
About McKibbin and Fernando (2020), with still on-going internal trade activities with
the nation, they may face lockdown too as per the government directive of the pandemic
becomes a threat to the society. In such a case, it will be wrong to urge that any country will be
surviving during such a difficult situation. In other words, with the increasing global situation
about the Coronavirus, if it becomes a pandemic in any state, the economy of the country will
significantly decline, and the economics of Ireland will not be an exception. In-country, in this
case, will eventually register a decline in the gross domestic product due to quarantine measures
put in place to curb the risk of further spread of COVID-19. Industries and other business sectors

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will have to lay off some of their staff's members to save costs and maximize profits (Bergin and
Elish Redmond, 2020). This will be a clear indication of a substantial rise in unemployment
cases across the country. Given the current setting of fear and uncertainty within the state,
businesses are more likely to delay investments, hire workers, and purchase stocks for their
routine activities.
In conclusion, after the global pandemic ends, the country will still be suffering various
economic challenges. To address such a fall, the growth of the economy will need to be adjusted
and may take a decade to recover such a loss and turn back to standard functionality. Also,
through proper institutional and policy reforms, they will strengthen demand, build resilience,
and led recovery through the aid of universal and robust social protection schemes that will act as
social and economic stabilizers in the face of the pandemic. Government and institutional trust
will be rebuilt through such initiatives. Dominance is only achieved by putting in place several
actions which may change over time. Additional, as the infected patients reduce, it will be easy
to undertake intensive testing within a given population.

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References
Auerbach, A.J., 2018. Measuring the effects of corporate tax cuts. Journal of Economic
Perspectives, 32(4), pp.97-120.
Bergin, A.K. and Elish Redmond, P., 2020. The labor market in Ireland, 2000–2018. IZA World
of Labor.
Davies, R.B., Siedschlag, I. and Studnicka, Z., 2016. Corporate Taxation and Foreign Direct
Investment in E.U. Countries: Policy Implications for Ireland. ESRI Quarterly Economic
Commentary.
Freedman, J., 2017. Tax and Brexit. Oxford Review of Economic Policy, 33(suppl_1), pp.S79-
S90.
Hardiman, N., 2010. Bringing domestic institutions back into an understanding of Ireland's
economic crisis. Irish Studies in International Affairs, pp.71-87.
Hein, E., 2017. Financialisation and tendencies towards stagnation: The role of macroeconomic
regime changes in the course of and after the financial and economic crisis 2007-9 (No.
90/2017). Working Paper, Institute for International Political Economy Berlin.
Howard, C., 2019. Ireland: A Study in the Effectiveness of Corporate Tax Rate
Reduction. Journal of Interdisciplinary Undergraduate Research, 11(1), p.3.
McKibbin, W.J. and Fernando, R., 2020. The global macroeconomic impacts of COVID-19:
Seven scenarios.
World Health Organization, 2020. Coronavirus disease 2019 (COVID-19): situation report, 70.

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