Scotland: A New Fiscal Settlement
AbstractExecutive Summary Many commentators have criticised the strategy currently used to finance the Scottish Parliament – both the block grant system, and the small degree of fiscal autonomy devised in the Calman report and the UK government’s 2009 White Paper. Nevertheless, fiscal autonomy has now been conceded in principle. This paper sets out to identify formally what level of autonomy would be best for the Scottish economy and the institutional changes needed to support that arrangement. Our conclusions are in line with the Steel Commission: that significantly more fiscal powers need to be transferred to Scotland. But what we can then do, which the Steel Commission could not, is to give a detailed blueprint for how this proposal might be implemented in practice. We face two problems. The existing block grant system can and has been criticised from such a wide variety of points of view that it effectively has no credibility left. On the other hand, the Calman proposals (and the UK government proposals that followed) are unworkable because, to function, they require information that the policy makers cannot possibly have; and because, without borrowing for current activities, they contain no mechanism to reconcile contractual spending (most of the budget) with variable revenue flows – which is to invite an eventual breakdown. But in its attempt to fix these problems, the UK White Paper introduces three further difficulties: new grounds for quarrels between the UK and Scottish governments, a long term deflation bias, and a loss of devolution.
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Bibliographic InfoPaper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2010-23.
Date of creation: 2010
Date of revision:
Tax and Expenditure Devolution; Inter-Government Relations; Fiscal Federalism; State Budget; Fiscal Coordination;
Other versions of this item:
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
- P43 - Economic Systems - - Other Economic Systems - - - Finance; Public Finance
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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