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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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Related research

Keywords: Second chance; Political economy; Inequality; Upward mobility; Intragenerational mobility.;

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References

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  1. Alberto Alesina & Eliana La Ferrara, 2001. "Preferences for Redistribution in the Land of Opportunities," NBER Working Papers 8267, National Bureau of Economic Research, Inc.
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  9. Ryo Arawatari & Tetsuo Ono, 2008. "A Second Chance at Success: A Political Economy Perspective?," Discussion Papers in Economics and Business 08-04, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
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  21. Lorenzo Forni, 2005. "Social Security as Markov Equilibrium in OLG Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 178-194, January.
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Citations

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Cited by:
  1. Ryo Arawatari & Tetsuo Ono, 2008. "The Political Economy of Occupational Mobility and Redistribution Policy," Discussion Papers in Economics and Business 08-18, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  2. Ryo Arawatari & Tetsuo Ono, 2008. "A Second Chance at Success: A Political Economy Perspective?," Discussion Papers in Economics and Business 08-04, 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 08-18-Rev.3, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Aug 2011.
  4. Arawatari, Ryo & Ono, Tetsuo, 2013. "Inequality, mobility and redistributive politics," Journal of Economic Theory, Elsevier, vol. 148(1), pages 353-375.
  5. Tetsuo Ono, 2014. "Economic Growth and the Politics of Intergenerational Redistribution," Discussion Papers in Economics and Business 14-17, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  6. Ryo Arawatari & Tetsuo Ono, 2011. "A Political Economy Theory of Government Debt and Social Security," Discussion Papers in Economics and Business 11-33, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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