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A Second Chance at Success: A Political Economy Perspective?

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  • Ryo Arawatari

    ()
    (Graduate School of Economics, Osaka University)

  • Tetsuo Ono

    ()
    (Graduate School of Economics, Osaka University)

Abstract

This paper characterizes a stationary Markov perfect political equilibrium where agents vote over income taxation that distorts their educational investment. Agents become rich or poor through educational investment, and the poor have a second chance at success. The results show the following concerning the costs of a second chance. First, when the cost is low, the economy is characterized by high levels of upward mobility and inequality, and a low tax burden supported by the poor with prospects for upward mobility. Second, when the cost is high, there are multiple equilibria: one is characterized by high levels of upward mobility and inequality and a low tax burden supported by the rich, the other is characterized by low levels of upward mobility and inequality and a high tax burden supported by the poor. Numerical examples show that the low-cost economy is inferior to the high-cost economy in terms of social welfare.

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Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 08-04.

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Length: 44 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:osk:wpaper:0804

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Web page: http://www.econ.osaka-u.ac.jp/
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Keywords: Second chance; Political economy; Inequality; Upward mobility; Intragenerational mobility.;

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References

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  25. repec:ebl:ecbull:v:4:y:2008:i:13:p:1-13 is not listed on IDEAS
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Citations

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Cited by:
  1. Ryo Arawatari & Tetsuo Ono, 2008. "A Second Chance at Success: A Political Economy Perspective," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 08-04-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Jul 2008.
  2. Ryo Arawatari & Tetsuo Ono, 2008. "The Political Economy of Occupational Mobility and Redistribution Policy," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 08-18, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  3. Ryo Arawatari & Tetsuo Ono, 2008. "A Political Economy Model of Earnings Mobility and Redistribution Policy," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 08-18-Rev.4, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Oct 2012.
  4. Ryo Arawatari & Tetsuo Ono, 2009. "Inequality, Mobility and Redistributive Politics," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 09-12-Rev.2, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Feb 2010.
  5. Ryo Arawatari & Tetsuo Ono, 2011. "A Political Economy Theory of Government Debt and Social Security," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 11-33, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  6. Tetsuo Ono, 2014. "Economic Growth and the Politics of Intergenerational Redistribution," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 14-17, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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