The Richard commission and the financing of devolved government: the economics of devolution in Wales: Briefing No. 8

P.G. McGregor, J.K. Swales, K. Turner, Calvin Jones, M. Munday, A. Roberts

Research output: Working paper

Abstract

If the Barnett formula is rigorously applied to determine the budget of the Welsh Assembly Government, this will ultimately adversely affect the economy of Wales by limiting the growth in aggregate demand. This effect is reinforced now that population weights determining rises in expenditure in Wales (and Scotland and Northern Ireland) are regularly up-dated. There is some controversy in Wales about whether some form of needs-assessment exercise would favour Wales relative to its current position. What is clear is that the outcome of a rigorous, long term application of the Barnett formula would be a share of UK public expenditures in Wales (and Scotland and Northern Ireland) that was almost certainly below the level that would be dictated by any conventional understanding of 'needs'. The impact of the tax-varying power favoured by the Richard Commission is ambiguous, with the direction of effects dependent on the reaction of the current labour force and potential migrants. If workers insist on full compensation for loss of income to tax through a rise in gross wages a tax rise would lead to an economic contraction. However, if workers value the additional public services financed by the tax rise as equal to their loss of disposable income, this effect can be avoided. Much in other words would depend on how the proceeds of the tax rise were spent
LanguageEnglish
Number of pages7
Publication statusPublished - Jun 2004

Fingerprint

Economics
Financing
Government
Devolution
Tax
Wales
Workers
Northern Ireland
Scotland
Wages
Aggregate demand
Needs assessment
Income
Expenditure
Public expenditure
Contraction
Labor force
Migrants
Exercise
Income effect

Keywords

  • regional policy
  • devolution
  • Wales
  • economic models
  • government finance

Cite this

@techreport{33f04f10f65b4837879b76976522be3c,
title = "The Richard commission and the financing of devolved government: the economics of devolution in Wales: Briefing No. 8",
abstract = "If the Barnett formula is rigorously applied to determine the budget of the Welsh Assembly Government, this will ultimately adversely affect the economy of Wales by limiting the growth in aggregate demand. This effect is reinforced now that population weights determining rises in expenditure in Wales (and Scotland and Northern Ireland) are regularly up-dated. There is some controversy in Wales about whether some form of needs-assessment exercise would favour Wales relative to its current position. What is clear is that the outcome of a rigorous, long term application of the Barnett formula would be a share of UK public expenditures in Wales (and Scotland and Northern Ireland) that was almost certainly below the level that would be dictated by any conventional understanding of 'needs'. The impact of the tax-varying power favoured by the Richard Commission is ambiguous, with the direction of effects dependent on the reaction of the current labour force and potential migrants. If workers insist on full compensation for loss of income to tax through a rise in gross wages a tax rise would lead to an economic contraction. However, if workers value the additional public services financed by the tax rise as equal to their loss of disposable income, this effect can be avoided. Much in other words would depend on how the proceeds of the tax rise were spent",
keywords = "regional policy, devolution, Wales, economic models, government finance",
author = "P.G. McGregor and J.K. Swales and K. Turner and Calvin Jones and M. Munday and A. Roberts",
year = "2004",
month = "6",
language = "English",
type = "WorkingPaper",

}

TY - UNPB

T1 - The Richard commission and the financing of devolved government

T2 - the economics of devolution in Wales: Briefing No. 8

AU - McGregor, P.G.

AU - Swales, J.K.

AU - Turner, K.

AU - Jones, Calvin

AU - Munday, M.

AU - Roberts, A.

PY - 2004/6

Y1 - 2004/6

N2 - If the Barnett formula is rigorously applied to determine the budget of the Welsh Assembly Government, this will ultimately adversely affect the economy of Wales by limiting the growth in aggregate demand. This effect is reinforced now that population weights determining rises in expenditure in Wales (and Scotland and Northern Ireland) are regularly up-dated. There is some controversy in Wales about whether some form of needs-assessment exercise would favour Wales relative to its current position. What is clear is that the outcome of a rigorous, long term application of the Barnett formula would be a share of UK public expenditures in Wales (and Scotland and Northern Ireland) that was almost certainly below the level that would be dictated by any conventional understanding of 'needs'. The impact of the tax-varying power favoured by the Richard Commission is ambiguous, with the direction of effects dependent on the reaction of the current labour force and potential migrants. If workers insist on full compensation for loss of income to tax through a rise in gross wages a tax rise would lead to an economic contraction. However, if workers value the additional public services financed by the tax rise as equal to their loss of disposable income, this effect can be avoided. Much in other words would depend on how the proceeds of the tax rise were spent

AB - If the Barnett formula is rigorously applied to determine the budget of the Welsh Assembly Government, this will ultimately adversely affect the economy of Wales by limiting the growth in aggregate demand. This effect is reinforced now that population weights determining rises in expenditure in Wales (and Scotland and Northern Ireland) are regularly up-dated. There is some controversy in Wales about whether some form of needs-assessment exercise would favour Wales relative to its current position. What is clear is that the outcome of a rigorous, long term application of the Barnett formula would be a share of UK public expenditures in Wales (and Scotland and Northern Ireland) that was almost certainly below the level that would be dictated by any conventional understanding of 'needs'. The impact of the tax-varying power favoured by the Richard Commission is ambiguous, with the direction of effects dependent on the reaction of the current labour force and potential migrants. If workers insist on full compensation for loss of income to tax through a rise in gross wages a tax rise would lead to an economic contraction. However, if workers value the additional public services financed by the tax rise as equal to their loss of disposable income, this effect can be avoided. Much in other words would depend on how the proceeds of the tax rise were spent

KW - regional policy

KW - devolution

KW - Wales

KW - economic models

KW - government finance

M3 - Working paper

BT - The Richard commission and the financing of devolved government

ER -