The Barnett Formula: Limitations of Existing Analyses
No explicit analysis to date of the likely wider economic consequences of the Barnett formula (e.g. in terms of GDP or employment), but presumably important:
- Perhaps surprising in view of the fact that the formula drives the regional distribution of an important element of aggregate demand, namely (a component of the region’s) government expenditure
Furthermore, no analysis of the implications of the “Darling amendment”, which resulted in the regular up-dating of the population weights used in the formula
- Past studies have tended to treat population as a “given” / “exogenous”
- In fact in a regional economy like Scotland expect population to depend on demand and hence on Barnett
- Here e.g. a contraction in expenditure in Scotland reduces wages and increases employment rates and a loss in population
- Hence when weights are up-dated Scotland’s lower population relative to England would necessitate a further contraction in expenditures in Scotland
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Try here to tackle both issues, with the help of the standalone Scottish model