To sum up, economic theory suggests that some degree of fiscal autonomy renders policy-
makers more accountable, and could improve economic efficiency. Various commentators
have also suggested that part of the crisis in democratic participation in local government
elections in the UK is attributable to the lack of fiscal powers available to sub-central
governments. For example, The Economist (2002) argues that the problem of democratic
participation in local and devolved government will not be solved if the proposed English
regional assemblies are granted few economic powers. Whether voter interest will dwindle in
devolved government in Scotland and Wales in the absence of further devolution of fiscal
powers remains to be seen.

However, fiscal decentralisation is not without its problems. The choice of appropriate tax
instruments for sub-central governments presents some problems in the light of issues such
as: the mobility of factors of production across jurisdictions; the need to balance fiscal
autonomy with some degree of revenue distribution between richer and poorer regions; and
the need to avoid complexity. In the next section we examine some of the issues that have
arisen in some other OECD countries, and the potential lessons for the UK from these
experiences.

Some Features of Decentralisation in OECD Countries

Equity versus Accountability

The presence of vertical transfers between central and sub-central levels can lead to a lack of
accountability on the part of sub-central governments. An interesting case study in fiscal
decentralisation is that of Italy. In the 1970s, Italian sub-central governments (communes,
provinces, and regions) depended to a much greater extent on local taxes. Tax reforms in the
early 1970s were designed both to reduce the complexity of the tax system, and to increase
the degree of fiscal control retained by central government during a period of macroeconomic

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