Considering a New Constitutional Settlement for Scotland
- Studies in Fiscal Federalism and State–local Finance series
3. The economic case for fiscal devolution In this chapter we examine the standard economic case for the devolution of fiscal powers to a sub level of government: with the current constitutional settlement in the UK from Westminster to Holyrood. We believe that these arguments would apply a fortiori in terms of Scotland achieving political independence. The idea of properly aligning public spending and taxing decisions at sub-national levels of government is not a new one. Indeed, Adam Smith in 1776 (p. 250) pointed out that: those public works which are of such a nature that they cannot afford any revenue for maintaining themselves, but of which the conveniency is nearly confined to some particular place or district, are always better maintained by local or provisional revenue, under management of a local and provincial administration, than by the general revenue of the state. . . . Were the streets of London to be lighted and paved at the expense of the Treasury, is there any probability that they would be so well lighted and paved as they are at present, or even at so small an expense? Smith also questioned the fairness of having people outside a benefit area paying for benefits enjoyed by others: The expense, besides, instead of being raised by a local tax upon the inhabitants of each particular street, parish, or district in London, would, in this case, be defrayed out of the general revenue of the state, and would consequently be raised by a tax upon all the...
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