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

• However, the evidence from other countries is that fiscal autonomy is not costless.
Conflicting competencies in spending, and competition over the tax base, can easily
destroy some of the potential benefits of fiscal autonomy. This suggests that any fiscal
decentralisation has to be carefully designed to be transparent, with clearly defined
competencies for different jurisdictions.

• Most countries that have granted a greater degree of fiscal autonomy to its regions have
done so through a greater delegation of taxes on immobile factors, on personal income,
and through non-tax measures (fees and charges to consumers of local services).
Devolving income taxationto sub-central government raises the problem of factor
mobility in the absence of effective tax competition. However, in the case of the UK the
limited evidence that exists (see Blow et al., 1996) suggests that migration may be less of
a problem than some observers fear and, to date, there is little evidence from other OECD
economies that small tax differentials have led to major movements in population.

• Any increase in fiscal autonomy will increase the need for some system of horizontal
equalisation if a degree of equal access to public services is to be maintained. The
evidence from other OECD countries is that such shifts in resources can be substantial,
and this finding is also backed up by the limited evidence available for the UK (Blow et
al., 1996).

• However, excessive degrees of fiscal equalisation (e.g. through full tax-sharing) can
militate against the gains in accountability deriving from fiscal autonomy. Countries that
have placed considerable emphasis on interjurisdictional solidarity (e.g. Germany and
Italy) face problems in achieving a better balance between equity and fiscal
accountability.

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