April 15 is Tax Day in the United States, and complaints about taxation this time of year are legion. Americans tend to be upset around tax time for a basic reason: We broadly believe that the government wastes our money.
We work until April 23 each year just to pay our taxes, but we lag behind many other wealthy democracies in delivery of public goods, like health and education. This perception raises a problem: We demand services from our governments but we are reluctant to pay for them.
Governments around the world often struggle to collect tax revenues for the same reason. Businesses and individual citizens avoid taxation by underreporting income, keeping business deals off the books, and exaggerating losses and expenses. Civil servants and elected officials may weaken enforcement mechanisms to reward allies. This strategy is particularly common in low-income countries, but increasingly affects the ability of cities, counties, states, and the federal government to collect taxes in the United States.
Governments frequently attempt to capture additional tax revenues by expanding their enforcement of existing tax rules and facilitating tax payments. But tax enforcement can be costly: Steep cuts to the IRS’s budget since 2010 mean that catching tax cheats is less and less likely.
Facilitation of payments doesn’t always work, either — especially if citizens and businesses do not trust the government to spend their taxes wisely and are therefore unwilling to pay.
One way to increase tax revenues is to improve democratic governance, which can increase citizens’ willingness to pay the taxes they owe and also encourage governments to collect the taxes on the books.
We find that citizens are more willing to pay taxes and that local governments are better able to collect tax revenue when citizens have an expanded role in local politics: a voice and a vote. Our research draws from a study of all 5,570 Brazilian municipalities and focuses on two types of participatory institutions that Brazilian governments experimented with from the 1980s to the present: participatory budgeting and public policy councils.
In both these institutions, citizens voluntarily participate in state-sanctioned processes in which they express voice and exercise vote on specific budget and policy issues. These programs thus incorporate citizens into policymaking and give them authority on how local governments spend their budgets.
The results of our analysis show a 33 percent increase in local tax collection when local governments adopt these specific types of citizen participation programs.
These findings from Brazil are particularly important for the United States. We, too, are a large federal country with extensive revenues collected at state and local levels.
The US also has a gap between what we owe and what the government collects. The latest estimates have the US taxpayers paying about 82 percent of what they owe, which translates to almost half a trillion dollars in lost revenue.
Surprisingly, Americans say they are much more willing to pay their taxes than citizens in some other democracies, like Italy or Greece.
However, this type of American exceptionalism may be in danger and it might not translate into actual tax compliance. Our trust in government is at historic lows and it would make sense if tax compliance rates started to fall as a result. President Trump tells us it’s “smart” to cheat the government because the government would “squander” the money.
Similarly, Brazil’s Bolsonaro administration has taken aim at participatory institutions that give citizens voice and vote. Just this week, Bolsonaro eliminated national-level policy councils, the very institutions that we find increase tax compliance at the local level.
But there are also some reasons to be optimistic about our long-term tax prospects. Like Brazil, the US has also seen a recent turn to greater participation at the local level. Citizens are increasingly engaging with their fellow citizens as well as with public officials to make decisions on the budget. Participatory budgeting programs in New York, Chicago, San Jose, and Seattle all have similar potential to increase satisfaction with government and raise local revenue.
Why does democratic governance improve revenue collection?
Individuals engage in participatory institutions to draw the attention of government officials and their fellow citizens to pressing social and policy problems. Citizens are also likely to participate in these institutions through their involvement in community organizations, thus generating stronger social capital.
Government services may then expand into areas that were previously underserved, both from a thematic and geographic standpoint, because citizens and CSOs use deliberative forums in participatory institutions to draw government officials’ attention to pressing problems. Citizens are invested in the policies and projects they select and therefore engage in greater oversight of policy implementation than they otherwise might, which leads to more public services and better quality programs.
Adopting participatory institutions shifts governance as governments and civil society actors learn to work together to select policies that the government will then implement. Citizens engage government officials directly through participatory institutions and are then more likely to hold their governments accountable and ensure that they deliver services using their tax revenue. Citizens are also likely to perceive of governments as more legitimate in general.
There is the potential for a spillover effect among nonparticipating citizens’ perceptions as well because they learn about the programs from their neighbors and friends. Thus both the participating individuals and their social networks are then more likely to comply with tax rules.
Our research provides evidence that good governance can complement other strategies in pursuit of tax compliance. Governments that adopt participatory institutions make investments in democratic accountability and legitimacy that pay dividends in tax revenue. In turn, more revenue can increase governments’ capacity to deliver better services, which begets still more legitimacy. Optimally, rather than simply extracting revenue from an unwilling population, tax compliance strategies that emphasize accountability and legitimacy can inaugurate a virtuous circle that benefits citizens and governments alike.
Adopting participatory budgeting and other similar options is not only an option for the United States, it is a good idea that is already gaining a foothold in progressive cities. Yet, empowering citizens to hold their governments accountable should not be limited to cities on the political left. Promoting efficient public expenditures, government that is closer to the people, and public oversight to limit government waste and fraud align with the right’s traditional goals as well.
Most Americans do not look forward to paying taxes, but it is important to remember the services that Americans demand from their governments. Adopting programs that give citizens a voice and a vote in how governments spend their money not only improves these services, but it is an idea whose time has come for promoting accountable government, improving public confidence, and, ultimately, generating the revenue America needs.
Michael Touchton is an assistant professor of political science at the University of Miami.
Brian Wampler is a professor of political science at Boise State University.