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The regional distribution of public expendictures in the UK: an exposition and critique of the Barnett formula

Ferguson, L. and McGregor, P.G. and Swales, J.K. and Turner, K. (2003) The regional distribution of public expendictures in the UK: an exposition and critique of the Barnett formula. In: Regional Public Finance, European Research in Regional Science. Pion Ltd, pp. 191-207. ISBN 0850861748

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Abstract

The Barnett formula is the official basis upon which increments to public funds are allocated to the devolved regions of the UK for those parts of the budget that are administered locally. There is considerable controversy surrounding the implications of its strict application for the relevant regions. The existing literature focuses primarily on the equity of the spatial changes to government per capita expenditure that would accompany such a change. In contrast, in this paper we attempt to quantify the system-wide economic consequences-the real, relative resource squeeze that accompanies the financial relative squeeze-on one devolved region, Scotland. The analysis uses a multisectoral regional computable general equilibrium modelling approach. We highlight the importance of population endogeneity, particularly since the population proportions used in the formula are now regularly updated.