A cost-benefit approach to the evaluation of regional selective assistance

The ‘Green Book’ and the recent EGRUP report support exchequer cost per job as a key input in the ex-ante appraisal of individual applications for Regional Selective Assistance (RSA) and the ex-post evaluation of the RSA scheme as a whole. In this paper, following a recommendation in the House of Commons Trade and Industry Committee’s report on regional policy, the merits of an alternative, explicitly cost-benefit, framework are outlined. This approach incorporates the administration and compliance costs of the subsidy, costs at present ignored in RSA evaluation studies. An optimal ex-ante appraisal rule is developed. This takes the form of a cost-per-job ceiling, and a representative value is calculated for this figure.

Measuring wellbeing in Scotland : the Oxfam Humankind Index

This paper describes recent work by the Fraser of Allander Institute (FAI) which constructs an index of wellbeing in Scotland. The issue of wellbeing has been extensively discussed in the economics literature on happiness, and wellbeing indices have been assembled for other counries. However, this is the first attempt to measure wellbeing in Scotland. The overall aim of the research is to identify in detail what people in Scotland believe affects their wellbeing and to construct an overall measure. The Scottish results are clearly interesting in that they identify the priorities that people in Scotland have in terms of wellbeing or happiness. A key finding is the relatively limited role that economic variables appear to contribute to wellbeing, Having secure work and suitable work and having enough money to pay the bills both ranked as joint fifth in the list of elements affecting wellbeing, reinforcing arguments made in the 2009 Sarkozy report, the broad thrust of which was that govermnent policy should focus less on creating economic growth and more on those areas which people identify as increasing wellbeing. A wellbeing index itself is clearly also a useful policy tool – for example, it allows us to assess how the government is performing in succesfully addressing issues which people in Scotland have identified as increasing wellbeing. A good example of this is when we compare health and safety. The index shows that while both being in good health and feeling safe in the local community contribute significantly to wellbeing, the performance on health far exceeds the performance on safety

Policy spillovers in a regional target-setting regime

The present UK government has introduced a decentralised, target-driven framework for the delivery of regional policy in England. This paper analyses the operation of such a regime when there are spatial spillovers about which the government is uninformed. It stresses the simple idea that spillovers in such a setting normally lead to a sub-optimal allocation of policy expenditures. A key result is that the existence of negative spillovers on some policies generates expenditure switching towards those policies. The extent of the expenditure switching is related to a number of factors: the size of the spillovers; the initial policy weights in the government's welfare function; the number of agencies; the extent of their knowledge of spillovers; and their degree of collusion. Such expenditure switching is generally not welfare maximising

Exploring key economic sectors and groups of sectors in Scotland; 1998, 2004, 2007

Different methods and criteria exist for determining ‘key’ economic sectors. The Scottish Government identifies a number of ‘key’ sectors, although it is not clear which metrics it used to choose these. It is likely that these sectors are considered to be ‘key’ in delivering the Scottish Government’s policy priorities. This differs from a more formally defined economic approach to determining key sectors. However, even within the economics literature, there are different ways of thinking about which sectors are ‘key’. This short paper presents one approach to determining individual and groups of ‘key’ sectors. We will explain why these approaches are not necessarily equivalent, and what value is added in moving from considering sectors individually to analysing the impact of sectors in groups. We begin with a non-technical overview of the methods we employ, before discussing the database used in this analysis. We then present the results of applying this method for Scotland for three time periods: 1998, 2004, and 2007. We mainly focus on sectoral output, but we also include one set of results which look at key employment sectors. In the discussion of our results we concentrate on two things. First, we are interested in which sectors are identified as important in Scotland in each time period. Second, we investigate how those sectors have changed between 1998, 2004 and 2007

The Efficiency of Decentralised and Devolved Government: A Framework

A wide range of geographically decentralised governance structures exists across countries (Ter-Minassian, 1997). These differences in administrative and constitutional mechanisms come about, at least partly, by historical accident and wider political factors. However, in this paper we focus on the more narrowly defined efficiency implications of such arrangements. This is useful for identifying the motives that might underlie particular administrative set ups and the possible efficiency losses associated with specific forms of decentralisation or devolution. In particular, we develop a framework that allows a comparison of the effectiveness of implementing policy through three alternative systems. These are: a centralised; a decentralised; and a fully devolved structure. In this analysis we build on the work of Canes-Wrone et al, (2001) and Maskin and Tirole (2004) on representative democracy. The novelty is that we place this analysis in the context of a potentially decentralised or devolved regional administration. We find that the choice of appropriate administrative form depends upon the degree of homogeneity between regions, the relative efficiency of regional decision makers and their time discount rate.

The Export Base Model with a Supply-Side Stimulus to the Export Sector

In the export-base model, the level of a region’s economic activity is underpinned by the performance of its export sector (Daly, 1940; Dixon and Thirlwall, 1975; Kaldor, 1970; North, 1955). This theory is now almost universally represented as a primitive version of the familiar Input-Output (IO) or Keynesian demand-driven approach, where regional output is linked to regional exports through a rather mechanistic multiplier process (Romanoff, 1974). Further, in a standard IO inter-regional framework, the expansion of output in one region always generates positive impacts on other regions. That is to say, there is always a positive spread, and no negative backwash, effect. However, these models typically embody no supply-side constraints. What is more, the stimulus to the export sector is often thought to come through supply-side improvements (North, 1955; McCombie, 1992). Whilst accepting that the development of a healthy export base is generally central to promoting the growth of the regional economy, the relationship is likely to be much more complex than is usually thought. Also whilst an increase in regional exports typically increases economic activity in the target region, the effect on other regions is less straightforward (Myrdal, 1957). In this paper we begin by using a single-region IO analysis of the operation of a stylised export base model. The impact of a conventional increase in export demand is compared to a situation in which increased competitiveness underpins the improved export performance. This analysis is then extended through the use of an inter-regional (Scotland–Rest of the UK) Computable General Equilibrium (CGE) model. In simulation, different exogenous demand and supply side disturbances are calibrated so as to generate the same long-run expansion in Scottish manufacturing exports. The subsequent specific evolutions of regional GDP and employment in both Scotland and the rest of the UK (RUK) are then tracked.Export base, efficiency improvement, regional growth

Forward Looking and Myopic Regional Computable General Equilibrium Models. How Significant is the Distinction?

We present a stylized intertemporal forward-looking model able that accommodates key regional economic features, an area where the literature is not well developed. The main difference, from the standard applications, is the role of saving and its implication for the balance of payments. Though maintaining dynamic forward-looking behaviour for agents, the rate of private saving is exogenously determined and so no neoclassical financial adjustment is needed. Also, we focus on the similarities and the differences between myopic and forward-looking models, highlighting the divergences among the main adjustment equations and the resulting simulation outcomes.Myopic and Forward-looking Behaviour, Computable General Equilibrium Models, Regional Adjustment.

The Committee on Climate change: A Policy Analysis

Domestic action on climate change is increasingly important in the light of the difficulties with international agreements and requires a combination of solutions, in terms of institutions and policy instruments. One way of achieving government carbon policy goals may be the creation of an independent body to advise, set or monitor policy. This paper critically assesses the Committee on Climate Change (CCC), which was created in 2008 as an independent body to help move the UK towards a low carbon economy. We look at the motivation for its creation in terms of: information provision, advice, monitoring, or policy delegation. In particular we consider its ability to overcome a time inconsistency problem by comparing and contrasting it with another independent body, the Monetary Policy Committee of the Bank of England. In practice the Committee on Climate Change appears to be the ‘inverse’ of the Monetary Policy Committee, in that it advises on what the policy goal should be rather than being responsible for achieving it. The CCC incorporates both advisory and monitoring functions to inform government and achieve a credible carbon policy over a long time frame. This is a similar framework to that adopted by Stern (2006), but the CCC operates on a continuing basis. We therefore believe the CCC is best viewed as a “Rolling Stern plus” body. There are also concerns as to how binding the budgets actually are and how the budgets interact with other energy policy goals and instruments, such as Renewable Obligation Contracts and the EU Emissions Trading Scheme. The CCC could potentially be reformed to include: an explicit information provision role; consumption-based accounting of emissions and control of a policy instrument such as a balanced-budget carbon tax.Climate change, Carbon policy, Independent body, Time Inconsistency

A Comparison of Results From MRIO and Interregional Computable General Equilibrium (CGE) Analyses of the Impacts of a Positive Demand Shock on the ‘CO2 Trade Balance’ Between Scotland and the Rest of the UK

In previous work we have applied the environmental multi-region input-output (MRIO) method proposed by Turner et al (2007) to examine the ‘CO2 trade balance’ between Scotland and the Rest of the UK. In McGregor et al (2008) we construct an interregional economy-environment input-output (IO) and social accounting matrix (SAM) framework that allows us to investigate methods of attributing responsibility for pollution generation in the UK at the regional level. This facilitates analysis of the nature and significance of environmental spillovers and the existence of an environmental ‘trade balance’ between regions. While the existence of significant data problems mean that the quantitative results of this study should be regarded as provisional, we argue that the use of such a framework allows us to begin to consider questions such as the extent to which a devolved authority like the Scottish Parliament can and should be responsible for contributing to national targets for reductions in emissions levels (e.g. the UK commitment to the Kyoto Protocol) when it is limited in the way it can control emissions, particularly with respect to changes in demand elsewhere in the UK. However, while such analysis is useful in terms of accounting for pollution flows in the single time period that the accounts relate to, it is limited when the focus is on modelling the impacts of any marginal change in activity. This is because a conventional demand-driven IO model assumes an entirely passive supply-side in the economy (i.e. all supply is infinitely elastic) and is further restricted by the assumption of universal Leontief (fixed proportions) technology implied by the use of the A and multiplier matrices. In this paper we argue that where analysis of marginal changes in activity is required, a more flexible interregional computable general equilibrium approach that models behavioural relationships in a more realistic and theory-consistent manner, is more appropriate and informative.To illustrate our analysis, we compare the results of introducing a positive demand stimulus in the UK economy using both IO and CGE interregional models of Scotland and the rest of the UK. In the case of the latter, we demonstrate how more theory consistent modelling of both demand and supply side behaviour at the regional and national levels affect model results, including the impact on the interregional CO2 ‘trade balance’.CGE modelling, MRIO, CO2 trade balance, environmental responsibility