Scotland: A New Fiscal Settlement
67 Pages Posted: 7 Apr 2010
Date Written: March 30, 2010
This paper makes five contributions to designing a new fiscal regime for Scotland: 1). It provides the intellectual case for fiscal autonomy in Scotland, and examines explicitly how far autonomy should go. 2). It provides a blueprint for how the tax system could be devolved, and explains why. 3). It details the institutional arrangements necessary to support such a regime and specifies how they might work. Specifically we look at mechanisms to limit public debt, and provide a blue-print for how they might be implemented to ensure credible fiscal policies. 4). Fiscal autonomy trades efficiency and better economic outcomes against spreading adverse spillovers or tax competition to other regions in the UK and a possible lack of discipline. We show how fiscal autonomy can be set up in a way that is consistent with the UK macro-economic framework, and consistent with EU rules on state aid. 5). Under our blueprint, the Scottish budget for 2007-08 would have been in a stronger position than the UK as a whole, being in balance or a mild deficit (0.8% of GDP).
Keywords: Tax and expenditure devolution, inter-government relations, fiscal federalism, state budget, fiscal coordination
JEL Classification: H71, H74, P43, E61
Suggested Citation: Suggested Citation