Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/338303 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11692
Version Description: 
This Version: October 2025
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
We propose a method for cost-benefit analysis of public policies that identifies potential Pareto improvements when losers from a reform are compensated through income tax changes. Reforms are desirable when they reduce aggregate excess burden in commodity and labor markets. This condition is equivalent to a weighted sum of individual compensating variations, where weights reflect the impacts of the policy reform on individuals' labor incomes, rather than marginal social valuations of transfers to them. We identify cases in which distributional weights are increasing in individual incomes, despite inequality concerns.
Subjects: 
applied welfare economics
weighted surplus
excess burden
JEL: 
D60
H20
H40
I30
Document Type: 
Working Paper
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