A DEFENCE OF EQUALISING GRANTS TO LOCAL AUTHORITIES
| Published date | 01 February 1982 |
| Date | 01 February 1982 |
| DOI | http://doi.org/10.1111/j.1467-9485.1982.tb00440.x |
| Author | David N. King |
Scottish
JournoloJPnliticel
Economy,
Vol.
29,
No.
1,
February 1982
0
1982
Scottish
Economic
Society
0036
9292/82/00100(30(1$02.00
A
DEFENCE
OF
EQUALISING GRANTS TO
LOCAL
AUTHORITIES
DAVID
N.
KING
University
of
Stirling
I
INTRODUCTION
In a recent issue of this journal, Barnett and Topham
(1980)
set out to
“highlight the unfortunate and unanticipated effects of mechanistic matching
grants” to local authorities, and they argued that “the existing grant system is
in need of a fundamental re-appraisal” (p.
237).
They raise a number of
objections to a system of equalisation grants which gives each authority
a
sum
equal to a percentage of the revenue it raises in local taxes (the percentage
being high in low tax-base areas and vice-versa) though much
of
their case is
independent
of
the precise type
of
grant in operation. The three principal
objections are as follows
:
first, they claim that grants have a regressive impact
in that, if an area consists of two income groups (one rich and one poor), then
there will either be a redistributive impact away from the poor or a
redistributive impact in favour of the rich
;
secondly, they claim that consumer
mobility in the housing market provides an arbitrage function
so
that joint
prices for housing and public services will be equal if grants do not exist, and
hence (p.
236)
“there is no problem of horizontal equity for
.
. . grants to
address”; thirdly, they argue that grants are socially divisive. These are all
interesting charges and merit further discussion.
In this paper, I will take these three claims in turn. In section 11, I shall
suggest that the first claim is unproven. The analysis presented by Barnett and
Topham rests on
a
shaky assumption and contains a crucial erroneous
inference from the algebra. It is possible to use their general approach without
the assumption and the error to show that grants almost certainly have a
progressive impact
;
this result also follows if the assumption (but not the error)
is restored to the discussion. In section 111,
I
shall argue that a consideration of
the arbitrage function does not necessarily invalidate the equity case for
grants. In section IV,
I
shall consider the policy implications of the claim that
grants are socially divisive. Finally, in section
V,
I
summarise the detailed
points at issue between Barnett and Topham and myself.
’
I
am very grateful to
P.
G.
Hare
for
comments on this paper, but
1
must accept
Cull
Date of receipt
of
final manuscript:
30
October
1981.
responsibility
for
any
errors
which remain.
102
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