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



remain shared between the four tiers of government (State, ACs, provinces and
municipalities). In Italy, regions were given greater powers in the 1970s and 1980s and now
have primary responsibility over matters such as health, vocational education and training,
economic development, public works and the environment
5. In recent years, as we shall see
below, there have been major changes in the 1990s to reform the financing of local
authorities, with a move towards greater fiscal autonomy. A similar, though less marked trend
is visible in France, where there were considerable moves to devolve spending powers to
regional and local authorities, though many services are provided in collaboration between
tiers of government rather than assigned exclusively.
6. In most countries, a more marked shift
is evident in the share of sub-central expenditure on goods and services only.

Third, when compared to other EU countries, the UK has always had a lower than average
degree of decentralisation of its spending functions (see Table 2). Whilst the nature of the
lower tiers of government has changed with devolution, this has not greatly affected the
degree to which expenditure is assigned to sub-national jurisdictions.

Economic theory suggests that allocating expenditure decisions close to the citizen will lead
to a more efficient outcome, with local electorates being able to determine the allocation of
public spending on different services in a way that best suits the local electorate.

This is what lies behind the Tiebout (1956) model of consumer choice, whereby consumers
will choose to locate in jurisdictions that will provide them with the mix of public services
that optimise their welfare. Oates’ (1972) classic work on fiscal federalism also suggests that
jurisdictions should be designed, and the assignment of public expenditures should be carried
out, in such a way that services are provided by the jurisdiction representing the smallest

5 Although this is not apparent from Table 2, because the most significant phase of decentralisation, from the
perspective of spending took place before 1985. Over the 1970-85 period, sub-central government spending
doubled from 7 to 14 per cent of GDP (see Bibbee and Goglio (2002).



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