Saturday, January 3, 2009

The Irish real estate bubble

One thing that I've wondered about the global credit meltdown is why did the crisis affect so many countries outside of the US? Obviously there would be some spillover effects considering the increasingly globalized nature of the world's economy, but I don't think globalization by itself hasn't been extensive enough to cause what we're seeing today. One possible explanation is that other countries were doing the same things that America was doing, by pumping up their own housing bubble. The NYT today gives a hint that this happened to some extent in Ireland, Europe's biggest success story and a country where real estate tycoons acquired the wealth and cachet that hedge fund managers had in the US:

Irish banks, unlike those in the United States, didn’t dole out that many subprime loans. Rather, they lent furiously to big property developers who themselves were liberated to build pell-mell by government-imposed tax breaks.

The Times takes a stab at free market economics by saying that such tax breaks "liberated" developers, but a consistent free marketeer believes in a broad tax base and low rates – that is, no preferential treatment to particular industry.

I've been trying to find information on the web that corroborates the NYT's story about the real estate industry paying lower taxes than other Irish industries, but I'm coming up short. Anybody know anything about this?

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