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 8: Fiscal Devolution in Some Other Countries

C. Paul Hallwood and Ronald MacDonald

Subjects: economics and finance, public finance, regional economics


For comparative purposes, this chapter presents an overview of the fiscal federalism experience in other countries. We look at how the issue of the vertical imbalance of fiscal structure is addressed in other European countries and then we go on to look at how fiscal federalism works in federal countries. SUB-CENTRAL GOVERNMENT IN OTHER COUNTRIES About 60 per cent of public expenditure in Scotland already has been devolved to the Scottish Executive. The devolution of expenditures on health, education, housing and community amenities, social security and welfare, and general public services to sub-central governments (SCGs) is common in many EU countries – though not all together in any single country.1 As many of these expenditure categories have also been devolved to Scotland, in broad outline, the division of expenditure responsibilities is not so controversial. This, however, cannot be said of the division of taxing powers between sub-central government (SCG) and central government (CG) in the UK – a division that differs a good deal from that in many other European Union and non-EU countries. It has been pointed out that: there has in recent years been a growing literature on the arrangements in individual countries and on comparisons between them, and the resulting exchange in ideas produced by this literature has itself played a part in the evolution that can be observed in several countries. (OECD, 2002, p. 12) So what can the UK learn from international practices? Table 8.1 shows the composition of SCG revenues in eight EU countries, divided into...

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