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International Monetary Fund. European Dept.

Multinational enterprises (MNEs) have played a dominant role in creating high-paying jobs and boosting corporate income tax revenues in Ireland. However, analogous to discoveries of natural resources, a sudden FDI boom, if not prudently managed, could give rise to adverse effects associated with the so-called “Dutch disease”. Using stylized facts and regression-based empirical analysis, this paper finds little evidence of adverse resource movement effect or spending effect from the FDI and MNE boom, while productivity spillovers from foreign investments to the indigenous economy are found to have been limited. Policies should continue pursuing fiscal prudence to reduce domestic spending pressure and fostering linkages between MNEs and domestic firms.

Moya Chin and Ms. Li Lin
We study the pass-through of labor costs to prices using a novel data-set that links industry-level wages to sectoral consumer prices through input-output tables. Pass-through increased during the COVID-19 pandemic recovery, temporarily in goods and persistently in services. Our analysis suggests that the elevated pass-through contributed at least 0.8 percentage points to goods inflation in 2021 and 0.7 percentage points and 0.5 percentage points to services inflation in 2021 and 2022, respectively. We find that the increase in pass-through reflects elevated demand in goods sectors and firms' difficulty in absorbing high wage growth in services sectors. The analysis suggests it will take a reduction in wage growth to bring PCE inflation back to target. Fiscal and monetary policies that help to re-balance the labor markets can facilitate this process.