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A Political Economy Model of Earnings Mobility and Redistribution Policy

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  • Ryo Arawatari

    ()
    (Faculty of Economics, Shinshu University)

  • Tetsuo Ono

    ()
    (Graduate School of Economics, Osaka University)

Abstract

This paper presents a politico-economic model including a mutual link between earnings mobility and redistribution policy affected by human capital risk. The model demonstrates that a low-risk economy produces multiple equilibria: an unskilled- majority equilibrium with lower mobility and higher redistribution, and a skilled- majority equilibrium with higher mobility and lower redistribution. In contrast, a high-risk economy produces a unique, unskilled-majority equilibrium with high mobility and low redistribution, which supports the POUM (prospect of upward mobility) hypothesis. In the latter economy, a further increase in risk may improve the expected utility of agents.

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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 08-18-Rev.2.

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Length: 42 pages
Date of creation: Apr 2008
Date of revision: Sep 2010
Handle: RePEc:osk:wpaper:0818r2

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Web page: http://www.econ.osaka-u.ac.jp/
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Keywords: earnings mobility; human capital risk; political economy; stationary Markov perfect equilibrium; redistribution;

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References

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  1. Grossman,G.M. & Helpman,E., 1996. "Intergenerational Redistribution with Short-Lived Governements," Papers 2-96, Tel Aviv.
  2. Arawatari, Ryo & Ono, Tetsuo, 2009. "A second chance at success: A political economy perspective," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1249-1277, May.
  3. Martín Gonzalez Eiras, 2010. "Social Security as Markov Equilibrium in OLG Models: A Note," Working Papers 105, Universidad de San Andres, Departamento de Economia, revised Sep 2010.
  4. Hassler, John & Storesletten, Kjetil & Zilibotti, Fabrizio, 2003. "Democratic Public Good Provision," CEPR Discussion Papers 4044, C.E.P.R. Discussion Papers.
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  8. Gonzalez-Eiras, Martín & Niepelt, Dirk, 2012. "Ageing, government budgets, retirement, and growth," European Economic Review, Elsevier, vol. 56(1), pages 97-115.
  9. Hassler, John & Mora, Jose & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002. "The Survival of the Welfare State," Seminar Papers 704, Stockholm University, Institute for International Economic Studies.
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  11. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers 2003-03, FEDEA.
  12. Ryo Arawatari & Tetsuo Ono, 2009. "Inequality, Mobility and Redistributive Politics," Discussion Papers in Economics and Business 09-12-Rev.2, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Feb 2010.
  13. D'Amato, Marcello & Galasso, Vincenzo, 2008. "Political Intergenerational Risk Sharing," CEPR Discussion Papers 6972, C.E.P.R. Discussion Papers.
  14. J. Ignacio Conde-Ruiz & Vincenzo Galasso & Paola Profeta, 2006. "Early Retirement and Social Security: A Long Term Perspective," CSEF Working Papers 165, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  15. Ryo Arawatari & Tetsuo Ono, 2010. "Retirement and Social Security: A Political Economy Perspective," Discussion Papers in Economics and Business 10-04, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  16. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
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  19. Zheng Song, 2009. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," 2009 Meeting Papers 94, Society for Economic Dynamics.
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  22. Zheng Song, 2012. "Persistent Ideology And The Determination Of Public Policy Over Time," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 175-202, 02.
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  25. La Ferrara, Eliana & Alesina, Alberto, 2005. "Preferences for Redistribution in the Land of Opportunities," Scholarly Articles 4552533, Harvard University Department of Economics.
  26. Song, Zheng, 2008. "Persistent Ideology and the Determination of Public Policies over Time," MPRA Paper 10364, University Library of Munich, Germany.
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  28. Quadrini, Vincenzo, 1999. "Growth, learning and redistributive policies," Journal of Public Economics, Elsevier, vol. 74(2), pages 263-297, November.
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