The Political Economy of Financing Scottish Government

The Political Economy of Financing Scottish Government

Considering a New Constitutional Settlement for Scotland

Studies in Fiscal Federalism and State–local Finance series

C. Paul Hallwood and Ronald MacDonald

Can the UK survive widespread dissatisfaction in both Scotland and England with the financing of public spending by Scotland’s parliament? This timely book explains how fiscal autonomy could raise economic growth and efficiency in Scotland – to the benefit of both Scotland and the rest of the United Kingdom. The authors discuss how other reform proposals – which amount to cutting Scotland’s block grant – would fail as they would not be seen in Scotland as legitimate. They conclude that fiscal autonomy would be accepted as it reduces Scotland’s democratic deficit in public spending, and would go a long way toward reducing vertical and horizontal imbalances in the UK.

Chapter 5: Fiscal Federalism: A Scottish Perspective

C. Paul Hallwood and Ronald MacDonald

Subjects: economics and finance, public finance, regional economics

Extract

In this chapter we give an example of what a fiscal federal structure might look like for Scotland using data extracted from the Scottish Government’s publication Government Expenditure and Revenue (GERS). This chapter draws on our contribution to the Allander series in which we were asked to consider what a fiscal federalist structure might look like for Scotland. In that paper the latest data we had access to was for the period 2001–02, and we showed what Scotland’s spending, revenue and estimated fiscal balance would have been for that period. Here we supplement these figures with the most up-to-date numbers using the 2008 GERS estimates for revenue and expenditure. Although our preferred structure of fiscal devolution is toward the fiscal autonomy end of the spectrum, we think the system proposed here may be of interest to people who would like to see a midway house on the spectrum of fiscal devolution. We start by giving a brief overview of the current picture with respect to taxation and spending in Scotland. We then go on to present a sketch of what a fiscal federalist system might look like for Scotland, based on the arguments made in previous chapters. We discuss the fiscal federal choices for Scotland around the three key dimensions, namely: ● ● ● revenue raising issues; the design of a grant system; the borrowing options. We set the scene by outlining the current Scottish position. THE SCOTTISH POSITION Spending Under the Scotland Act (1998) various expenditure functions have been devolved to...

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