are scaling up our monitoring and analysis of domestically - relevant non - bank financial sector. finally, in view of its central role in determining our effectiveness, it should come as no surprise that resilience has been selected as one the five priority themes shaping our 2019 – 2021 strategic plan. iv. fiscal resilience fiscal resilience exists if the public finances are sufficiently sound to enable policymakers to buffer adverse shocks through the operation of the automatic stabilisers and the activation of proportionate discretionary fiscal measures. in contrast, fiscal fragility amplifies adverse shocks through damaging feedback dynamics by which increases in the sovereign risk premium raise economy - wide funding costs and, in extremis, lead to a loss of market access. the anchor of a resilient fiscal regime is a robust public balance sheet, in combination with a cyclically - appropriate time path for the budget balance. i have discussed the political economy challenges of implementing a prudentially - focused fiscal strategy elsewhere ( lane 1998, 1999, 2013, 2018b ; tornell and lane 1999 ). rather, i want to focus on some specific issues relating to the current irish situation. in particular, one current byproduct of ireland ’ s status as an export platform for multinational firms is that there has been a surge in corporation tax revenues in recent years. a substantial proportion of the extra revenue relates to the external profits of domestically - resident multinational firms. in addition, the public finances have also been boosted by the low interest rate environment, especially in view of the high level of sovereign debt ( which is owed to foreign investors to a large degree ). analytically, the combination of extra corporation tax revenues generated by the overseas activities of multinational firms and lower interest payments to foreign investors can be interpreted as equivalent to a positive inward income transfer. in terms of the cross - country experience, other types of inward transfers include the foreign earnings of commodity producers, net recipients of eu transfers and recipients of official aid. the analysis of such inward transfers has given rise to an extensive research literature. a basic lesson is that temporary windfall income should be treated differently to permanent income, due to the welfare gains from smoothing consumption and the long - term impact of temporary spending surges that may permanently damage the productivity of the tradable sector. ( the latter phenomenon is known as the “ dutch disease ”. ) it follows that temporary windfall income should be largely saved, through some mix of accumulating foreign assets and ( subject

the duration and precise level of low long rates remains quite uncertain. a current project at the central bank of ireland is to provide a model - based analysis of the economics of such fiscal windfalls ( conefrey et al, 2019 ). this work delivers several findings. first, choosing to spend the extra revenues rather than running a larger surplus has a very different impact if the economy is far away from capacity limits than if there are conditions of full employment. in particular, any crowding out of private - sector activity turns on the response of wages to the surge in public spending. wage dynamics tend to be quite non - linear : wages do not substantially increase in response to extra demand unless there is sufficiently high pressure in the labour market. accordingly, the net assessment of whether to spend windfall revenues should be revised once the economy hit capacity limits. second, it is important to recognise that there may be long - term consequences if the privatesector is crowded out as a result of excessive fiscal expansion. in particular, if it turns out that the windfall revenues are only temporary, downward rigidity in wages means that the decline in demand is not easily absorbed, with unemployment rising under this scenario. more generally, the squeezing of private - sector activity has a persistent impact due to a range of factors, since myriad financial, investment and organisational frictions mean that the private sector can recover only slowly from declines in competitiveness ( benigno and fornaro 2014 ). at a qualitative level, these points hold true for all types of public spending ( transfers, government consumption, public investment ), even if the precise composition of fiscal policy needs to be taken into account in assessing the labour market impact of fiscal expansion. at the same time, temporary increases in public investment may be easier to reverse than expanding the level of social transfers or government consumption, while also adding to the long - run public capital 5 / 7 bis central bankers'speeches stock. accordingly, the ranking of alternative spending options during a windfall phase in part turns on whether the public capital stock is assessed to be below its desired level. in particular, in the wake of a period of suppressed public investment during the crisis, a temporary phase of extra public investment may be less costly than alternative spending options in relation to windfall revenues. third, a failure to run surpluses during windfall phases may limit the capacity of the government to offset negative cyclical or structural shocks through fiscal loosening. if it turns out that concerns about the