Discussion Paper No.2411

Abstract :
Recently, discussions on regional secessions have gained prominence worldwide. Scotland’s ongoing independence debate is a prime example. What drives Scotland’s desire to separate itself from England? The primary reasons for Scottish independence are as follows: First, Scotland seeks greater autonomy in managing public policies, including healthcare, education, and welfare, which are currently under English jurisdiction. Second, there exists a strong desire for increased control over the oil and gas reserves in the North Sea. Under the current fiscal arrangement, England ’s central government has the authority to collect all tax revenues from these resources and manage them as part of the national treasury. Scotland’s quest for independence is motivated by its aim to directly control these valuable natural resources and their associated revenues. There are several other reasons for Scotland’s secession. However, the main problem is whether Scotland can obtain sufficient tax revenue stability when it becomes independent from England. Recently, regarding public finance in Scotland, a fiscal transfer from the central government has distributed almost all financial resources in Scotland. Given these circumstances, preventing secession is crucial because it may be socially inefficient. Thus, we must consider the kinds of public, transfer, and income tax policies the government in England should implement to prevent secession.