A CRITIQUE OF EQUALISING GRANTS TO LOCAL GOVERNMENTS*
| DOI | http://doi.org/10.1111/j.1467-9485.1980.tb00929.x |
| Date | 01 November 1980 |
| Published date | 01 November 1980 |
| Author | RICHARD R. BARNETT,NEVILLE TOPHAM |
.Scorri.yh
Journal
of
Polirical
Economy,
Vol.
27.
No.
3
November 1980
0
IYXO
Scottish Economic Society
A CRITIQUE
OF
EQUALISING GRANTS
TO
LOCAL GOVERNMENTS
*
RICHARD
R.
BARNETT?
AND
NEVILLE TOPHAM??
t
University
of
York and
tt
University
of
Salford
I
INTRODUCTION
Under local taxation, the fraction of local government expenditure an
individual is responsible for is given by his own taxable capacity divided by
the local tax base. Thus in a system of local governments, the tax bill an
individual faces per unit of the local public good depends on whom his
neighbours are. Unfortunately, this consideration has led
a
number
of
writers to argue that since, other things equal, a high tax rate implies more
effort
or
sacrifice than a low tax rate, central government should
so
design
grant aid that effort for the same level of service is equalised across jurisdic-
tions.
Equalising grants are based on some notion of horizontal equity. Pigou
(1928)
in discussing equal treatment of equals defined it as the principle that
“different persons should be treated similarly unless they are dissimilar in
some
relevant
respect”.’
A
relevant respect in this context, some writers
argue,
is
the tax rate whilst people occupying property assessed uniformly
for tax purposes are regarded as equals. This interpretation was, for example,
recently adopted by the British Government
:
The grant system can promote equity in the treatment of ratepayers in
different areas,
so
that ratepayers, wherever they live, pay the same bill if
their property has the same rateable value and their local authorities pro-
vide comparable overall levels
of
services.2
The Layfield Committee
(1976)
were of a similar persuasion and such a
system of grants has become known in the literature as District Power
Equalising (DPE).3
*
Various people have commented on earlicr drafts of this paper. We are particularly grateful
to
Professors
R.
Millward and M.
T.
Sumner
of
the University of Salford,
to
Professor
A.
Williams
of
the University of
York
and to an anonymous referee. An earlier draft was presented
in 1979 to a conference on Urban Economics organised by
the
Centre for Environmental Studies.
Date
of
receipt
of
final manuscript:
23
June 1980.
’
Pigou (1928), p. 6.
HMSO (1977). p. 9.
DPE came to
the
fore in the U.S. following the public education judgements in both the
Californian and U.S. Supreme Courts. It is discussed in Feldstein (1975). Support for such a
system of grants in the U.K. is to be found in
Le
Grand
(1975).
235
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