Improved Revenue Mobilization
The citizenry is more inclined to accept increased tax payments when it sees
a clear link between payment of the tax and improved government services.
When taxes are levied and collected at the central government level, that link
can be hard to see. Payments disappear into the national treasury, and the
funds get used in ways that have little identifiable consequence or impact on
the taxpayer.
The relationship can be radically different in the local fiscal structure.
The governing body levies a tax for local roads, for example: the tax is
collected locally, the money is spent on the local roads, and the citizenry can see the link between the tax and the service. The citizenry may be more willing
to accept imposition of a tax if the link between it and a particular service is
apparent. The effect is both on the politics of getting taxes adopted and on
compliance.Any local taxpayer will be a greater relative contributor to the local
budget than he or she is to a national budget, and any tax not paid will make a
greater difference to that budget.The consequence of nonpayment seems more
apparent, so compliance is more likely. The cheater on local taxes is stealing
from neighbors, not some distant central bureaucrats. And noncompliance
may be more visible to the general public,with some resulting prospect of social
pressure to comply. Revenue mobilization involves politics and compliance
incentives, not only technological capacity, and local governments can have the
advantage in those other areas.