Free State to Tax State: A Century of Taxation in Ireland

Abstract

Over the last century, there has been a dramatic change in both the composition and the structure of the Irish tax system. In this paper, we construct a new dataset of tax rates and tax bands for the main tax headings in Ireland, from 1920-2019. We document these changes and trends in tax policy in the aggregate and using the main tax headings. One striking regularity, however, is that Irish tax policy has been persistently procyclical. While tax revenues are naturally expected to vary with the cycle, we show that changes in tax rates have been conducted procyclically. Most notably, we find strong evidence that governments have tended to adjust the rates of income tax in a procyclical manner over the past century. Using an additional tax policy changes dataset, we show that discretionary tax measures – which incorporate all tax policy instruments (rates, bands, credits, exemptions, etc.) – have been largely procyclical over the period 1987-2019. These findings are in contrast with other developed countries, where tax policy has tended to be acyclical.