Implementing one of the key principles behind the Smith Commission proposals on further devolution could be "fraught with practical and political difficulties", a leading think-tank has warned.

While a new paper by the Institute for Fiscal Studies (IFS) said it "might seem that the most difficult decisions have been made" in reaching a deal on new powers for Holyrood, the UK and Scottish Governments now face the "more prosaic task of implementing these agreed changes".

A briefing note, by IFS senior research economist David Phillips, stated: "In many ways, the most difficult work lies ahead - getting the details of how the taxes and welfare are devolved will be crucial to whether the resulting system is seen as 'fair', and provides the right responsibilities and incentives to the Scottish Government."

Determining future adjustments to the block grant Scotland receives from Westminster will be crucial in ensuring the success of this latest phase of devolution, according to the IFS.

The paper also highlighted one of the Smith Commission's "key principles" - that the Scottish Government should bear the full revenue or spending consequences of its policy decisions, with the same applying to the UK Government for its decisions.

The IFS said: "In principle this is sensible. In order to properly align incentives for policy making, each government should bear the full costs (or receive the full benefits) of its policy decisions. It also seems only fair to compensate (or penalise) the other government for 'knock on effects' of policy decisions."

But it added: "Implementing such a principle would be fraught with practical and political difficulties, which mean that such transfers will often not be feasible."

The report continued: "Nearly all policy decisions could have knock-on effects on the revenues or spending of the other government. But calculating what these are is inherently difficult, with much room for disagreement over the methods and assumptions used.

"This means it is important to recognise that such compensating transfers will be practical only in a few simple cases - otherwise the system could quickly become unworkable."

It also warned that "any modelling exercise like this is controversial - particularly when tens or even hundreds of millions of pounds could be at stake".

The Smith Commission, which was established by the UK Government in the wake of the independence referendum, has proposed Holyrood gets a series of new powers, including control of income tax rates and bands and the devolution of some benefits, along with the power to "top up" welfare payments.

But the IFS said the principles behind the agreement suggested that if Westminster raised income tax for the rest of the UK apart from Scotland, and then used this cash to pay for something which would benefit all of the UK "the amount of money given to the Scottish Government via the block grant presumably ought to change".

It stated: "For instance, if taxpayers in the rest of the UK were paying more in income tax to spend more on defence, the amount transferred to the Scottish Government via its block grant would have to be reduced - otherwise the total amount spent for the benefit of people in Scotland would increase (because of the higher defence spending)."

The IFS paper also pointed out that the Scottish block grant would have to be adjusted to account for Scotland raising a higher proportion of its own funds, and for some areas of welfare spending being devolved.

The think-tank said that while agreeing such arrangements would be "relatively easy" at the start, they could be more difficult to determine in future years, as deductions or additions to the grants could not remain the same "because inflation and economic growth mean that the amount raised from a tax or spent on a particular area will typically tend to grow over time".

While the Smith Commission recognised this by saying changes to the block grant should be "indexed appropriately", the IFS argued this was a "rather cryptic phrase".

It said that coming up with a set of proposals for more devolution which had been agreed by the SNP, Labour, the Conservatives, Liberal Democrats and the Greens was a "significant achievement", but stressed: "Many difficult issues remain to be addressed - not least, how the block grant will be adjusted to account for the additional revenues and spending areas that will come under Holyrood's control. No system will be perfect in every dimension.

"There is an inherent trade-off between providing incentives to the Scottish Government and the degree of risk-sharing between Scotland and the rest of the UK. And, it will be almost impossible to devise a system where the UK and Scottish governments compensate each other for the knock-on effects of their policy decisions as the Smith Commission recommends."