Policy Reform Without Tears

Abstract

Most of the major policy reforms being considered result in winners and losers. It would be nice if this were not so, and one could devise reforms that were "win-win" propositions when one digs beneath the public rhetoric. Unfortunately, life does not often present reforms that meet the Pareto criterion of economists that nobody be worse off after the reform than they were before it. We illustrate how one can use a quantitative model of the Danish economy to determine what reforms could be Pareto improvements if one allowed compensation of losers.

JEL Classification: D63, D61, D78, D58, H2, C68