Essays on the Irish Economy and Financial System

This thesis includes two chapters focused on the role of non-bank entities in the Irish financial system in recent years and a third chapter analyses income mobility dynamics in the Irish economy during a period including the global financial crisis. The first chapter focuses on the role of non-banks in directly providing financing to small and medium enterprises in Ireland. The key interest of this chapter is on the financial stability implications in Ireland of the increased role for non-banks in providing credit directly to SMEs. We assess how non-banks respond, in comparison to banks, to an environment of tighter financial conditions, using data on the universe of lending in Ireland. Our results show that non-banks react more negatively than banks in response to tighter financial conditions. However, once we adjust our specification to account for the significant differences between non-banks lending in Ireland, we show that some non-bank lender types do not contract lending in response to a tightening in financial conditions, while lenders specialised in financing the property market react very negatively, contracting lending strongly in comparison to banks. Our results show the critical importance of looking beyond the binary classification of banks versus non-banks when conducting analysis on how the increased role of non-banks in direct lending may affect financial stability. The second chapter explores whether a change in regulatory status for financial service providers in the non-bank space leads to more favourable outcomes for consumers with respect to the terms on their loan agreements. Specifically, I estimate whether the introduction of consumer protection, or conduct of business, regulation, results in more or less favourable outcomes for consumers with respect to the interest rate charged on their loans, exploiting a regulatory change in the Irish financial system in 2022. I use a difference-in-differences strategy, which allows identification of the effect of the regulatory change on the lending behaviour of firms that became regulated entities during the sample period. The results of this analysis suggest that following the change in legislation which resulted in some entities becoming regulated, the interest rate charged to consumers increased. Thus, the change in regulatory status resulted in less favourable outcomes for consumers. The third chapter provides evidence on how income mobility evolved during from 2005-2014 in Ireland, a period characterised by significant volatility in macroeconomic outcomes. I use an administrative tax data set on the annual earnings of employees in Ireland, which follows the same individuals each year, allowing for an analysis of how individuals move through the income distribution over time. I provide estimates of macromobility measurements from the income mobility literature which estimate income mobility for the entire income distribution, outlining the starkly different outcomes depending on the sub-period in question. I also provide evidence for micromobility, the individual characteristics underlying income mobility. In terms of gross incomes, I find Construction workers were about 3 times more likely to experience a fall in the income distribution than other private sector workers during this period in Ireland. In contrast, public sector workers had lower odds of experiencing a fall in the income distribution. However, when looking at net incomes, which take account of additional levies on public sector salaries, the results suggest public sector workers were not more or less likely that private sector workers to move downwards through the income distribution. This suggests that while public sector workers were unlikely to become unemployed, in terms of net income, working in the public sector did not necessarily protect their relative position in the income distribution.