The Political Costs of Policy Reform

This paper provides simple, tractable approaches to estimate the political costs of reform when policies have been determined using political-support functions of the GrossmanHelpman type. The strength of policymakers‘ preference for particular sectors is inferred and used to develop political welfare functions that are then used to assess the political costs of particular reforms. Both short and long run measures of political welfare are developed and then explained using simple graphical techniques. Somewhat surprisingly, the differences between the short and long-run political costs of reform appear to be relatively small—suggesting a need for caution in assuming that opponents can be worn down and supporters strengthened by ―staying the course‖ of policy reforms. The measures of political costs developed here complement existing measures of economic welfare and of benefits to negotiating partners, potentially providing useful guides to policy action when policymakers‘ political capital is limited. An application to tariff-cutting formulas for trade negotiations allows comparison of economic efficiency gains with political costs, and strongly favors simple tariff-cutting rules, such as the proportional-cut rule or, better, a proportional-cut in the power-of-the-tariff rule, over more aggressive approaches such as the Swiss formula or excessively lenient approaches like the average-cut rule.