3.4.5 The Subsidiarity of Government Spend and Taxation
The subsidiarity of government spend and taxation affects both the autonomy and the prosperity of different parts of a country or region.
It determines the degree to which the different levels of government can make their own decisions. It is an issue that affects political acceptability, as analysed later (6.6), but it can also be explored from an economic perspective.
The cost of government administration is a drag on the rest of the economy at any level (3.2.3.4). There is a trade-off between incurring the cost of co-ordination at higher levels of administration versus the costs of duplication if similar departments are replicated at lower levels.
America’s federal constitution allowed States to be largely independent, but the federal budget is controlled by Congress. This has proved a problem in recent years, as bitter polarisation has periodically shut down many government services when Congress has refused to approve the appropriations. The US government shutdown in January 2018 was an example, vividly illustrating how politics can interfere with the smooth running of public services.
As described in the following sub-sections, the subsidiarity of government spend and taxation presents a range of benefits and challenges:
● Centralisation theoretically offers equality of service, co-ordination and the benefits of scale (3.4.5.1). In practice, though, it lacks responsiveness and accountability.
● National governments can make economic interventions to support regions which are less prosperous (3.4.5.2).
● Local control of government spend brings decision-making closer to the people who are affected (3.4.5.3). It is more responsive than central control, although there are problems in managing inequality between areas.
● Multinational groupings such as the European Union (EU) can benefit from smoother trade between themselves and use central funds to solve collective problems (3.4.5.4).
● Nationalist separatism might appeal to politicians but it doesn’t appear to offer any economic benefits (3.4.5.5).
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/345.htm