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The new fiscal powers of the Scottish Parliament and their impact on public services and the Scottish economy

The delivery of the Smith Commission’s recommendations for the Scottish Parliament (Smith 2014) mark the next major step in the process of devolution within the UK.

This scholarship – part of 2 PhD studentships in the Fraser of Allander under this overarching theme – will help inform our understanding of the economic implications of greater devolution within the UK and the challenges and opportunities that this brings.

The project will be in two parts.  Firstly, the technical research programme will extend and develop existing FAI models of the Scottish economy to formalise new frameworks to improve the ability of economic researchers to evaluate key devolution and policy issues at the regional level, and in particular, in the post-Smith era of Scottish devolution.

Secondly, it will then use these new techniques to run a series of simulations to illustrate the likely economic and fiscal implications of different policy choices on the Scottish economy and public finances (including their dynamic trends)as well as exploring the robustness of these results to model assumptions. The project will be undertaken in the Fraser of Allander Institute (FAI) within the Department of Economics. The FAI is Scotland’s leading applied economic research institute and has established an international reputation for regional economic modelling over more than 40 years.

  • Number of scholarships 1
  • Value £14,296 (pa for 3 years)
  • Opens 4 March 2016
  • Deadline 31 May 2016
  • Help with Tuition fees, Living costs
  • Duration 36 months

Eligibility

  • An excellent undergraduate degree with Honours in Economics.
  • A Postgraduate degree (or equivalent) in Economics (or a related subject).
  • Students may also have other relevant experience or skills which are relevant to this project – including experience of working with data and undertaking statistical and/or modelling analysis.
  • All applications must be accompanied by a cover letter indicating the candidate's relevant experience and motivation for contributing to this research, as well as a CV and relevant qualification transcripts.
  • Students must be available to commence their academic studies in the UK by the start of the academic year in September/October 2016.
  • Two references will be required.

Project Details

Over the next few years, the Scottish Parliament’s powers will be extended with the transfer of significant new responsibilities over tax and welfare to complement existing areas such as in health, education, justice, the environment and economic development.

At the same time, a new Fiscal Framework means that the manner in which the Scottish budget will be determined will change fundamentally with investment in public services in Scotland increasingly tied to the relative performance of the Scottish economy and to tax and borrowing decisions taken in Holyrood.

Together with the changes already underway, this will result in Scotland having one of the most powerful devolved Governments in the world, in terms of its control over both taxation and public expenditure. But there is still much debate over the effectiveness of these new powers, how best to use them, and the implications of this new framework of devolution for the economies and public finances of both Scotland and the other nations of the UK.

The speed at which these powers have been transferred has meant that there has been very little analysis of the potential economic consequences of such powers being used. Similarly, the new funding framework whilst untested has led to one of the most asymmetrical devolved systems within any developed country. 

This project aims to fill this gap.  The two key questions that it will explore are –

  • What are the implications of this new funding framework for the Scottish Parliament on future Scottish Budget
  • How robust is the framework to dealing with external shocks, key demographic trends and different policy choices (and how does it differ from the existing system)?

To answer these questions, this project will extend the FAI’s single region computable general equilibrium (CGE) model of the Scottish economy (AMOS) to reflect the newly-devolved fiscal powers under the control of the Scottish Parliament. 

AMOS is a detailed multisectoral modelling framework which captures the key interlinkages between the private sector, government, net trade, the labour market and households. In addition to providing important academic insights into how an economy operates, these models are ideal for simulating the impact of policy – both domestic (i.e. Scottish and UK) and international – on the Scottish economy. For some recent applications of AMOS see: Hermannsson et al (2014) and Lecca et al (2013, 2014a, b, c, 2015).

The robustness of this model is well established. It has underpinned much of the peer reviewed academic research work of the FAI over a number of years. The extension in this project will be in two parts. Firstly, the model will be updated to reflect the newly increased ‘self-funding’ element of the Scottish Budget as set out by the Fiscal Framework underpinning the Smith recommendations. Secondly, new frameworks for modelling the impact of the new tax and welfare powers will be incorporated.

This research will make a direct contribution both to the academic public finance and regional economic literatures as well as offering insight into a key economic policy debate in Scotland (and across the UK) on the future of devolved governments.

You will be expected to produce from your thesis a number of academic papers discussing the techniques applied alongside more descriptive articles focussing on the economic applications, conclusions and recommendations that follow.

In addition, given the nature of the work and the focus on public policy, you will have the opportunity to gain experience in writing complementary non-technical papers, and policy briefings, which summarises their research in an accessible way for non-economists.   

Useful References

Hermansson, K., Lisenkova, K., Lecca, P. McGregor, P.G. and Swales, J.K. (2014a), “The regional economic impact of more graduates in the labour market: a ‘micro-to-macro’ analysis for Scotland”, Environmental and Planning A, Vol. 46, p. 471-487.

Lecca, P., McGregor, P.G. and Swales, J.K. (2013), “Forward-looking and myopic regional computable general equilibrium models: How significant is the distinction?”, Economic Modelling, Vol. 31, p. 160-176.

Lecca, P., McGregor, P.G., Swales, J.K. and Turner, K.R. (2014b), “The added value from a general equilibrium analysis of increase efficiency in household energy use”, Ecologial Economics, Vol. 100, p. 51-62.

Lecca, P., McGregor, P.G., Swales, J.K. and Yin, Y.P. (2014,c), “Balanced budget multipliers for small open regions within a federal system: evidence from the Scottish variable rate of income tax”, Journal of Regional Science, Vol. 54, p. 402-421.

Lecca, P., McGregor, P.G. and Swales, J.K. (2015), “Scotland: no detriment, no danger: the interregional impact of a balanced budget fiscal expansion”, IPPI Occasional Paper.

OECD, 2013, “Decentralisation and Economic Growth – Parts 1-3”, June 2013. Available here http://www.oecd-ilibrary.org/taxation/oecd-working-papers-on-fiscal-federalism_22265848;jsessionid=d04da9ugh2h6.x-oecd-live-02

Smith, 2014, “Final Report of the (Lord) Smith Commission”, November 2014. Available herehttps://www.smith-commission.scot/

Further Information

This PhD studentship is part of a new ‘cluster’ of PhD and research activity within the Fraser of Allander in the area of devolved economic and fiscal analysis.

In addition to the benefits that the students will receive as part of an Economics PhD at the University of Strathclyde (outlined below), the students will benefit from being part of this new cluster.

Grant Allan, Deputy Director FAI will be lead supervisor. Grant has over ten years’ experience of developing multi-sectoral databases and models and has published many papers in this area in international refereed journals and books. Professor Peter McGregor, Director FAI will be the second supervisor. He has published widely in the area and has extensive experience in: managing major research projects funded by prestigious sources; successfully supervising many PhD students; building and applying regional CGE models; and developing appropriate knowledge exchange activities.

Alongside fellow early-stage and PhD researchers, you will become part of a core team of experienced academics and applied economists in the FAI (and wider Department of Economics). This research cluster will provide you with a strong support and peer review network.

You will also benefit from in-house training courses including classes which will lead to a PgC in Research Methods during the first year of PhD study. At the same time, since the Department of Economics participates in the Scottish Graduate Programme in Economics, you will also have access to classes, workshops and training courses that will offer the opportunity to deepen your knowledge in specific areas relevant to the PhD.

You will also have an opportunity to present your research as it progresses including at the Department’s annual PhD Away Day.

 

Approximate Timetable

PhD Title: The new fiscal powers of the Scottish Parliament and their impact on public services and the Scottish economy

Activity

Time

Induction, initial training & literature review

0 – 6 months

Database development and analysis

6 – 18 months

Specifying and calibrating the model

18 – 30 months

Running policy simulations and writing up the results

24 – 36 months