3.4.5 The Hierarchy of Government Spend and Taxation

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The subsidiarity of government spend and taxation – the degree to which the different levels of government can make their own decisions – affects both the autonomy and the prosperity of different parts of a country.  Multinational bodies such as the European Union (EU) have similar issues with regional policy.

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.

As described in the following sub-sections, there are different benefits from local autonomy compared to having a centralised national policy:

  • Centralisation offers equality of service, co-ordination and the benefits of scale (3.4.5.1).
  • National governments can try to support regions which are less prosperous, but grants are problematic (3.4.5.2).
  • Localisation brings decision-making closer to the people who are affected and can be more responsive (3.4.5.3).
  • Multinational groupings can benefit from smoother trade but they have their own administrative challenges (3.4.5.4).
  • Nationalist separatism might appeal to politicians but it doesn’t appear to offer any economic benefits (3.4.5.5).

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