Abstract

Tax incentives to attract foreign direct investment (FDI) have been the main tool of industrial policy in Ireland for over 50 years. As a result, Ireland has attracted large inflows of FDI, and is the European headquarters for many US digital-based firms, such as Facebook and Google. The paper argues that a tax-based industrial policy has become more risky, because of changes to international tax rules in response to criticism of low-tax strategies. The risk is that resulting changes will mean the Irish tax regime is far less attractive, and will result in an outflow of FDI. The paper argues that a tax-based industrial policy is not likely to result in an innovative, research-led economy, rather there is a need for new policies.