The Economic Case for Further Fiscal Decentralisation to Scotland: Theoretical and Empirical Perspectives

This paper examines the background to calls for further fiscal decentralisation in Scotland in the light of theories of fiscal federalism. In particular, it examines whether spatial differences in preferences, which are central to ‘first generation’ theories of fiscal federalism can be argued to play a central role in the case for granting Scotland further tax and spending powers. ‘Second generation’ theories of fiscal federalism draw attention to the political economy of allocating tax powers to different levels of government. Some of the authors in this strand of theory argue that the case for allocating tax powers to subnational governments can be made in terms of ‘accountability’ – the notion that local politicians can be better held to account for the outcomes of policy actions. Our empirical analysis suggests that there is no clear difference in preferences between Scotland and the rest of the UK along a number of key political dimensions. However, the Scottish parliament enjoys substantially higher levels of trust among the Scottish electorate than does the UK parliament.