Fiscal federalism and Fiscal Autonomy: Lessons for the UK from other Industrialised Countries



include both a self-financing equalisation mechanism and a grant payable to local authorities
in which the tax base per capita is less than 90% of the national average. The amount of this
second grant is based on expenditure need, and uses indicators such as pre-school and school-
age population (under 6 years old, 6-17 years old) and the elderly population (75 years and
over) to take account of the major costs of childcare, schooling and care for the elderly. In
addition, there is a role for social indicators such as the proportion of single-parent families,
the unemployment rate, and the non-EU immigrant population. In Spain, as fiscal autonomy
has progressively increased, a variety of grant formulae have been put in place. For ACs, the
most important of these is a tax-sharing grant based on expenditure needs, as measured by
population size, personal income, and tax capacity. In the case of provinces and
municipalities additional criteria include surface area and school-age population.

In France, where fiscal autonomy is more limited and sub-central government (regions,
departments and communes) rely for a third of their funds on central government grants, the
main grant (
Dotation Globale de Fonctionnement) uses objective factors based on need
(population, school population, tourist numbers, and fiscal capacity). Separate allocations are
made for capital grants (
Dotation Globale d’Equipement) which tend to match investment by
communes and departments, supporting local initiatives.

Of course, the UK has always had a system of grant allocation based on fiscal need for local
government, but it has resisted any reform of the Barnett formulae for the allocation of block
grants to its main devolved regions. In doing this, it remains, with Italy, one of the few
countries that have resisted the trend towards needs-based formulae and stuck with history
and political expediency. However, it should be recognised that any further move in the UK
towards financial autonomy for its main devolved units will bring with it a need to address
the issue of horizontal equalisation and will require some reform of the grant system. Further

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