The unintended consequences of English votes for English laws

Abstract:

The Smith Commission has proposed a set of reforms aimed at extending Scotland’s control of its revenues to 46 per cent and spending to 55 per cent and extending the legislative reach of the Scottish parliament. In reaction, the Conservative government has announced plans to implement some form of ‘English Votes for English Laws’ (EVEL). Under EVEL, a majority of English (and Welsh/Northern Irish) MPs would be necessary to pass legislation deemed to be only impacting on those nations. The objective of this paper is to examine the impact of EVEL on monetary policy, focusing on the potential for spillovers from fiscal policy choices. We will extend a model of Chari and Kehoe (2008) to show that because England is so much larger than the other constituent nations of the UK, its fiscal policy choices will have a commensurately stronger impact on UK monetary policy. As a result, UK monetary policy might be inappropriate for the smaller nations, calling into question the economic efficiency of EVEL.