45126-Invest. Qual-No111

Investment in QualityThe following are the main instruments that are potentiallyavailable to address inflation:●●●●Counter-cyclical fiscal policy;Wage determination and incomes policy;Competition policy and regulatory reform;Labour market policies; and● Infrastructural capacity and planning.Each of these is discussed briefly below.Counter-cyclical Fiscal PolicyWith the pooling of exchange rates and monetary policy instrumentsin the EU, the primary macroeconomic instrument available tomanage demand is fiscal policy. It is well known that the effectivenessof fiscal policy is very limited in a small open economy such asIreland. But this does not mean that it has no effect. Researchsuggests that fiscal policy in Ireland in recent years has beenstrongly pro-cyclical; i.e., it has added to the already strong growthin the economy (Duffy et al., 2001). This is an undesirable policyapproach. The Council recommends that fiscal policy shouldcontribute to the stabilisation of the economy.For the most part, public services are funded by taxation and are notincluded in inflation as measured by the CPI. Nonetheless, the costsof public services do have inflationary implications. Excessive costsin the public service can lead to higher taxation and put upwardpressure on wages. The Council considers that public servicesshould be improved and recommends improved management ofpublic expenditure. This requires, among other things, the focussingof expenditure on priorities, a stronger evaluation culture, the use ofsunset clauses to eliminate programmes that are no longer servingeconomic or social priorities and improved accountability for whatis achieved through public expenditure 8 .8. These issues are discussed further in the Council’s recent report AchievingQuality Outcomes: The Management of Public Expenditure.212