The political economy of local government finance

The field of local government finance has recently taken on increasing prominence in national affairs both in terms of its expenditure and the sources of income necessary for its financing. Central government through the Secretary of State for the Environment in England and the Secretaries of State for Scotland and for Wales, has taken on new powers to control local expenditures. However, it is not always clear what the consequences of such actions are for other agents in the economy. Hence this article attempts to trace such consequences, particular attention being paid to the Scottish experience.

There are two avenues of approach in conducting such an investigation, derived from the dual nature of the British system of local government finance. First, local government finance has been used as a macro-economic instrument whereby income and expenditure have been manipulated to aid central government's control of the economy. How do the new powers recently given to the Secretary of State for Scotland further such control? Secondly, will the exercise of such powers necessarily be to the detriment of the equalising properties of the system of local government finance. This article attempts to provide an answer to both questions.