Pareto-improving structural reforms

Gilles Saint-Paul

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Abstract: Economists recommend to partly redistribute gains to losers from a structural reform, which in many cases may be required for making the reform politically viable. However, taxation is distortionary. Then, it is unclear that compensatory transfers can support a Pareto-improving reform. This paper provides sufficient conditions for this to occur, despite tax distortions. In a setting where preferences are isoelastic, deregulation is implementable in a Pareto-improving way through compensatory lump-sum transfers, despite that these are financed by distortionary taxes. In a more general setting, there always exist Pareto-improving reforms but they may involve tightening regulation for some goods. I show that if demand cross-price elasticities are not be too large and that the reform is not too unbalanced, deregulation is again implementable in a Pareto-improving way. Finally, I consider counter-examples where some people earn rents associated with informational or institutional frictions, or where non homothetic preferences may make the schemes considered here not viable.

Keywords: Structural reform; Deregulation; Price controls; Pareto optimality; Taxation; Compensatory transfers (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-mic
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03238866v1
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Published in Journal of Economic Theory, 2021, 194, ⟨10.1016/j.jet.2021.105262⟩

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Related works:
Journal Article: Pareto-improving structural reforms (2021)
Working Paper: Pareto-improving structural reforms (2021)
Working Paper: Pareto-Improving Structural Reforms (2018)
Working Paper: Pareto-improving structural reforms (2018)
Working Paper: Pareto-improving structural reforms (2018)
Working Paper: Pareto-improving structural reforms (2018)
Working Paper: Pareto-Improving Structural Reforms (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03238866

DOI: 10.1016/j.jet.2021.105262

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