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Is Independence Possible in an Interdependent World? Scotland vs. the UK's Participation in the European Economy

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  • Andrew Hughes Hallett

    (School of Public Policy, George Mason University; School of Economics, St Andrews University, Scotland.)

Abstract

Many commentators have criticised the strategy used to finance regional governments such as the Scottish Parliament – both the block grant system and the limited amount of fiscal autonomy devised in the Scotland Act of 2012. This lecture sets out to identify what level of autonomy or independence would best suit a regional economy in a currency union, and also the institutional changes needed to sustain those arrangements. Our argument is developed along three lines. First, we set out the advantages of a fiscal federalism framework and the institutions needed to support it, but which the Euro-zone currently lacks. The second is to elaborate a model of fiscal federalism where comprehensive powers of taxation and spending are devolved (an independent Scotland and the UK remain constituent members of the EU and European economy). Third, we evaluate the main arguments for the breakup of nations or economic unions with Scotland and the UK as leading examples. We note that greater autonomy may not result in increases in long run economic growth rate, but it does imply that enhancing the fiscal competence and responsibility of regional governments would result in productivity gains and hence higher levels of GDP per head. That means the population is permanently richer than before, even if ultimately their incomes continue to grow at the same rate. It turns out that these improvements can be achieved through devolved tax powers, but not through devolved spending powers or shared taxes.

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Bibliographic Info

Paper provided by European Economic Studies Department, College of Europe in its series Bruges European Economic Policy Briefings with number 30.

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Length: 40 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:coe:wpbeep:30

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Web page: http://www.coleurope.eu
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Related research

Keywords: economic federalism; policy centralisation and decentralisation; currency Union; withdrawal from the European Union.;

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References

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  1. Lars Calmfors & Simon Wren‐Lewis, 2011. "What should fiscal councils do?," Economic Policy, CEPR & CES & MSH, vol. 26(68), pages 649-695, October.
  2. Andrew Hughes Hallett & Drew Scott, 2010. "Scotland: A New Fiscal Settlement," CDMA Working Paper Series 201009, Centre for Dynamic Macroeconomic Analysis.
  3. Alberto Alesina & Roberto Perotti, 1995. "Economic Risk and Political Risk in Fiscal Unions," NBER Working Papers 4992, National Bureau of Economic Research, Inc.
  4. Alberto Alesina & Enrico Spolaore, 1995. "On the Number and Size of Nations," NBER Working Papers 5050, National Bureau of Economic Research, Inc.
  5. Alesina, Alberto, 2003. "The Size of Countries: Does it Matter?," Scholarly Articles 4551794, Harvard University Department of Economics.
  6. Enrico Spolaore & Alberto Alesina & Romain Wacziarg, 2000. "Economic Integration and Political Disintegration," American Economic Review, American Economic Association, vol. 90(5), pages 1276-1296, December.
  7. Kevin H. O'Rourke & Alan M. Taylor, 2013. "Cross of Euros," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 167-92, Summer.
  8. Luis Rubalcaba, 2007. "Services in European Policies," Bruges European Economic Policy Briefings 16, European Economic Studies Department, College of Europe.
  9. Alesina, Alberto & Wacziarg, Romain, 1998. "Openness, country size and government," Journal of Public Economics, Elsevier, vol. 69(3), pages 305-321, September.
  10. Klaus Desmet & Michel Breton & Ignacio Ortuño-Ortín & Shlomo Weber, 2011. "The stability and breakup of nations: a quantitative analysis," Journal of Economic Growth, Springer, vol. 16(3), pages 183-213, September.
  11. Andrew Hughes Hallett & Rasmus Kattai & John Lewis, 2012. "How Reliable Are Cyclically Adjusted Budget Balances In Real Time?," Contemporary Economic Policy, Western Economic Association International, vol. 30(1), pages 75-92, 01.
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