The economics of the "Tartan Tax"

McGregor, Peter and Stevens, Jim and Swales, Kim and Yin, Ya Ping (1997) The economics of the "Tartan Tax". Quarterly Economic Commentary, 22 (3). pp. 72-87. ISSN 0306-7866

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    Abstract

    The General Election has resulted in the election of a Labour government committed to holding a referendum on the establishment of a Scottish Parliament and on whether the parliament should have tax varying powers. The proposed referendum will be pre-legislative and will seek popular support for proposals set out in a White Paper based upon the plans developed by the Scottish Constitutional Convention (SCC). A recent opinion poll suggests that 64% of Scots are in favour of a Scottish Parliament with 21% against and 15% undecided. (Dinwoodie 1997) In addition, 53% are in favour of the proposed "tax raising" powers with 28% against and 19% undecided. With a referendum planned for early Autumn, a Scottish Parliament with tax varying powers seems in prospect before the end of the millennium. The purpose of this paper is to explore the economics of the revenue raising powers or "Tartan Tax". In the remainder of this paper we will discuss mainly the financial aspects of the parliament. In Section 2, we set out an analysis of the scope of the proposed parliament and consider its likely influence on the macro economy. Section 3 briefly sets out Scotland's fiscal position whilst Section 4 outlines the approach to modelling the economy adopted in this paper. Section 5 presents both a theoretical and empirical evaluation of the probable effects of the proposed "tartan tax". Our concluding remarks are set out in Section 6.