The subsidiarity of government spend and taxation affects both the autonomy and the prosperity of different parts of a country or region.
It determines the degree to which the different levels of government can make their own decisions. It is an issue that affects political acceptability, as analysed later (6.6), but it can also be explored from an economic perspective.
Cost-effectiveness of economic administration is an issue. There is a cost attached to co-ordination, where economic governance is centralised, but devolution of power might incur costs of duplication if similar departments need to be replicated at lower levels.
Economic accountability is affected. America's federal budget is controlled by Congress, which can prevent the Administration from making the necessary economic decisions to run the country. This has proved a problem in recent years, as bitter polarisation has periodically shut down many government services when Congress has refused to approve the appropriations. The US government shutdown in January 2018 was an example, vividly illustrating how politics can interfere with the smooth running of public services.
As described in the following sub-sections, the subsidiarity of government spend and taxation presents a range of benefits and challenges:
· Centralisation can offer the benefits of scale (3.4.5.1). In practice, though, it might lack responsiveness and accountability.
· National governments can reduce the economic inequalities between regions (3.4.5.2). They can do this by making interventions to support regions which are less prosperous.
· Local control of government spend is more responsive than central control (3.4.5.3). It brings decision-making closer to the people who are affected, but there are problems in managing inequality between areas.
· Multinational groupings, such as the European Union (EU), can benefit from smoother trade between themselves (3.4.5.4). They can use central funds to solve collective problems
· Nationalist separatism might appeal to politicians, but it doesn’t appear to offer any economic benefits (3.4.5.5).
(This is an archive of a page intended to form part of Edition 4 of the Patterns of Power series of books. The latest versions are at book contents).