Does government need to be based on geographic contiguity?

That is my rewording of this request from Thijs:

At which point does technology allow another model of social organization than that based on shared territory?

I am reminded of Estonia’s e-citizenship model, but taken much further.  To flesh this out, imagine EU citizens could choose to which government they would pay their taxes.  So you could live in Lyon, but pay taxes to Germany and have your pension set by German policy and your legal disputes settled by German courts and so on.

What can’t be done this way, even say twenty years from now?  Well, your water supply, your primary education system, your electricity, your local police, and your roads, to name a few government services.  For those you have to deal with Lyon or some other local provider.  Germany can’t step in, except perhaps for some on-line parts of education but even then it wouldn’t mesh well with your local face-to-face provider, even putting aside differences of language.

Given all that, should Lyon and Germany let you peel off your potentially portable pension choice to the government provider of your choice?  It seems the wealthy people would cluster their fiscal and pension obligations with governments that were not so progressive in their fiscal policies.  In this regard it would be like a partial privatization of pension schemes.  But it would be a funny privatization rule: “allow pension choice, but only from local infrastructure-producing entities.”  You still would have the usual problems of selection, namely that the wealthy would opt for the pension and tax schemes of Luxembourg and Monaco — hey, wait, isn’t that the status quo?

Well, not quite.  In essence this plan would be further reducing the residency requirements for locales and tax havens such as Luxembourg, Monaco, the Cayman Islands, and so on.  You wouldn’t have to live there at all.  I suppose this is a way of privatizing the redistributive services of the state, without having to say you are doing so.  Does that make it more politically stable or less?

I suspect a lot of “local” pension schemes would stay in place for reasons of familiarity, nationalism, and the gravity equation.  (Just think how long it took many Greeks and Cypriots to withdraw their euros from their domestic banking systems.)  So many middle class Danes will stick with the Danish system, which they know and the like, though many of the Danish wealthy would secede from it and opt for Monaco.

Overall I think of this policy as one way to improve the lot of the wealthy.  Is it the way and the framing that will most induce additional effort and creativity from them?  I don’t see that case has been made.