FISCAL CHURNING AND POLITICAL EFFICIENCY

This paper proposes a measure of political efficiency. The measure loo ks at who pays taxes and who receives government transfers. Almost eve ry citizen pays tax and receives transfers. This is known as 'fiscal c hurning'. The present paper speculates that citizens would be no worse off, and possibly much better off if taxes and transfers were simulta neously lowered so that the citizen's net fiscal position did not chan ge. The proposed measure of political efficiency captures the degree t o which such a lowering could be accomplished, Using methods of tax an d spending incidence, the case of Canada in 1990 is studied, and it is found that between 15.2% and 49.2% of government spending may be chur ned. As Canada lies at the mean of OECD countries in almost all fiscal indicators, these results suggest that other OECD countries may be op erating under political systems that waste resources.