The macroeconomic consequences of Scottish fiscal autonomy: inverted haavelemo effects in a general equilibrium analysis of the tartan tax

In 1997 the Scottish people voted both for the creation of a legislative Parliament and to endow the Parliament with tax-varying powers. The establishment of the Scottish Parliament in 2000 heralded the most radical innovation in the regional fiscal system in modern U.K. history. This development has been the subject of considerable controversy, however, especially in respect of the decision to afford the Parliament the power to alter the basic rate of income tax by up to 3p in either direction. The fact that Scotland, at least according to official data, receives a substantial net fiscal transfer from the rest of the UK, and has traditionally had higher public expenditure per capita than England, leads most commentators to believe that the power to change the standard rate will, in practice, be restricted to the power to increase it (Blow et al, 1996; McGregor et al 1997). Accordingly, while the Parliament allows the use of the power to generate a balancedbudget contraction in expenditure, we focus here on the impact of a balanced-budget fiscal expansion. While Labour, SNP and the Liberal Democrats in Scotland all supported the introduction of a Parliament with tax-raising powers, the Conservatives labelled this scheme the “tartan tax” and claim that its use would be detrimental to Scotland, leading to a reduction in Scottish employment and to net out-migration. This political controversy, together with the national Labour Party’s desire to shed its reputation as a Party of high taxation, in part accounted for the Scottish Labour Party’s commitment not to exercise the tax-varying power during the lifetime of the first Scottish Parliament, despite the fact that others have meanwhile been vigorously arguing the case for full fiscal autonomy. In this paper we focus primarily on the consequences for the Scottish economy if the Parliament chooses to exercise the degree of fiscal autonomy that it already possesses. However, the factors that govern the likely macroeconomic impact of a balanced budget change also prove critical to the analysis of any region-specific tax or expenditure change, whether generated as a consequence of, for example, rigorous adherence to the Barnett formula (that, at least in principle, governs the allocation of government expenditure to the devolved authorities in the UK, et al 2003, 2007) or movement towards greater fiscal autonomy. Accordingly, we also identify the implications of our analysis for the wider debate on regional fiscal issues in general and greater fiscal autonomy in particular

The Awakening Chinese Economy: Macro and Terms of Trade Impacts on 10 Major Asia-Pacific Countries

This paper analyzes the impact that terms of trade (TOT) are likely to have on the growth of the People’s Republic of China’s (PRC) neighboring countries. Two scenarios employing a dynamic computable general equilibrium framework are considered: (i) a convergence scenario, where historical trends are projected; and (ii) a baseline scenario, where technological progress in the PRC is placed in line with that of the United States (US). The results show that the PRC’s technological convergence leads to increased world prices for mining products, and lower world prices for manufactures, especially those exported extensively by the PRC. On the whole, however, the effects on the growth and TOT of the PRC’s neighboring countries are relatively small. The modelling framework used in this study explicitly captures the various offsetting effects that dampen the impact on TOT and contribute to the small impact on growth. In addition, the additional capital required to finance the PRC’s growth comes predominantly from domestic savings, placing little pressure on the global supply of capital. Thus, an awakening PRC is unlikely to make a dramatic entrance despite the country’s overall positive impact on the region – although there is nothing to fear, there is also only little to gain.computable general equilibrium; multicountry models; People’s Republic of China; terms of trade

Poverty alleviation through geographic targeting : how much does disaggregation help?

Using recently completed"poverty maps"for Cambodia, Ecuador, and Madagascar, the authors simulate the impact on poverty of transferring an exogenously given budget to geographically defined subgroups of the population according to their relative poverty status. They find large gains from targeting smaller administrative units, such as districts or villages. But these gains are still far from the poverty reduction that would be possible had the planners had access to information on household level income or consumption. The results suggest that a useful way forward might be to combine fine geographic targeting using a poverty map with within-community targeting mechanisms.Poverty Monitoring&Analysis,Environmental Economics&Policies,Poverty Reduction Strategies,Services&Transfers to Poor,Health Economics&Finance,VN-Acb Mis -- IFC-00535908,Poverty Assessment,Safety Nets and Transfers,Rural Poverty Reduction,Services&Transfers to Poor