The Barnett formula under the Smith Reforms
Cuthbert, Jim (2015) The Barnett formula under the Smith Reforms. Fraser of Allander Economic Commentary, 39 (1). pp. 98-111. ISSN 2046-5378
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Abstract
With the implementation of the Smith Commission reforms, there will be abatements to the Scottish government’s block grant as calculated by the Barnett formula, to allow for the tax revenues which Westminster will forego. The income tax abatement will be increased through time in an arrangement known as Holtham indexation. The purpose of this paper is to model these new fiscal arrangements. The modelling implies that, other than in an unlikely special case, the system cannot run on indefinitely with fixed parameter values, without reaching relative values of per capita public expenditure in Scotland and England which would be politically unacceptable. Moreover, there is a likelihood of adverse dynamic effects which would further destabilise the system. The paper also puts forward an adjustment to the original form of Holtham indexation, to take account of relative population growth. While not answering every problem, this adjustment has strong equity arguments in its favour, and would also significantly stabilise the system. It is particularly important that the implications of this type of modelling should be taken on board by policy makers and parliamentarians just now, when the detailed legislative and other arrangements for implementing the Smith reforms are about to be finalised.
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Item type: Article ID code: 53549 Dates: DateEvent26 June 2015PublishedSubjects: Social Sciences > Economic Theory Department: Strathclyde Business School > Fraser of Allander Institute Depositing user: Pure Administrator Date deposited: 30 Jun 2015 10:30 Last modified: 12 Oct 2024 00:21 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/53549