Political Economy of Financing Scottish Government

Fiscal autonomy could raise economic growth and efficiency in Scotland, benefiting both Scotland and the rest of the United Kingdom. C. Paul Hallwood and Ronald MacDonald discuss how other reform proposals, which amount to cutting Scotland`s block grant, would not be seen as legitimate by Scottish voters, and would be unlikely to reduce the burden on the Westminster budget. The authors demonstrate how public finances can be organized to minimize the price of tranquillity in multi-regional states. Advances proposed in the `new fiscal federalism` literature are used to explain why fiscal autonomy would be a superior system compared to the present block grant system and fiscal federalism, whereby Scotland would be granted limited tax powers. Their extensive review of recent econometric studies finds that tax devolution in other countries has been largely successful.