Minimizing the Price of Tranquility: How to Discourage Scotland's Secession from the United Kingdom

Paul Hallwood

No 2008-23, Working papers from University of Connecticut, Department of Economics

Abstract: What some view as overly-generous funding of the Scottish parliament results from Scotland.s credible threat to secede from the United Kingdom. Scotland is shown to benefit from a second mover advantage in a non-cooperative sequential game over the allocation of public funds. Various reform proposals are criticized for not recognizing that reform of Scottish government finances must be consistent with Scotland.s credible threat. Fiscal autonomy -- in which the Scottish parliament finances a much greater proportion of its spending from Scottish-sourced taxes, is demonstrated to be a viable reform within the existing political context and, in some circumstances, could remove Scotland.s second mover advantage. We also use a cooperative bargaining game model to demonstrate that an Australian style grants commission would not be a viable reform in the British context.

Keywords: Barnett formula; cooperative game; fiscal autonomy; fiscal federalism; grants commission; non-cooperative game; public finance; regional finance; Scottish executive; Scottish parliament; secession; vertical balance; United Kingdom; vertical imbalance. (search for similar items in EconPapers)
JEL-codes: H77 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2008-08
New Economics Papers: this item is included in nep-cdm and nep-pbe
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