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 12: Glossary

C. Paul Hallwood and Ronald MacDonald

Subjects: economics and finance, public finance, regional economics

Extract

Allocative efficiency: a combination of efficiency in production and efficiency in consumption. ‘Efficiency in production’ means that goods are produced at least possible cost. ‘Efficiency in consumption’ means that consumers are able to obtain the goods that they want in the combinations they prefer. Technically, allocative efficiency is achieved when for any pairs of goods the ratio of marginal cost is equal to the marginal rate of substitution (or ratio marginal utilities). Assigned tax: taxes paid by and returned to the tax jurisdiction in which they were raised. Benefit taxes: taxes that match benefits received by taxpayers. For example, residents of a local school district paying the full cost of its school system. Thus, residents ‘pay for what they get’. See non-benefit taxes. Bloc grant: the annual grant from Westminster to Edinburgh used to finance devolved expenditures. Central government: the government of the UK based in Westminster. CG: see central government. Conditional grant: a grant from central government to sub-central government that is conditional on some action by the latter – very often to encourage sub-central government to spend money for a designated purpose, such as education. One purpose of conditional grants is to take account of spillover benefits from one tax jurisdiction to another. This is known as ‘internalizing an externality’. As the spillover is a benefit not paid for by the receiving region, the sending region will tend to underinvest in it. The condition grant gets around this problem. Devolved expenditure: expenditure classes devolved to Edinburgh under the Scotland...