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A Political Economy Model of Earnings Mobility and Redistribution Policy

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  • Ryo Arawatari

    ()
    (Graduate School of Economics, Nagoya University)

  • Tetsuo Ono

    ()
    (Graduate School of Economics, Osaka University)

Abstract

This paper presents a politico-economic model that includes a mutual link between earnings mobility and redistributive politics. The model demonstrates that an economy attains a unique, unskilled-majority equilibrium where unskilled, lowincome agents support a low, rather than a high, redistribution when the economy is featured by a high opportunity of upward mobility and downward mobility risk. In contrast, the economy attains multiple equilibria when mobility opportunity and risk are low: one is an unskilled-majority equilibrium supporting high redistribution and the other is a skilled-majority equilibrium supporting low redistribution. Which equilibrium arises depends on the expectations of agents. The paper gives a comparison between the political equilibrium outcome and the social plannerfs allocation in terms of mobility and redistribution policy.

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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.3.

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Length: 52 pages
Date of creation: Apr 2008
Date of revision: Aug 2011
Handle: RePEc:osk:wpaper:0818r3

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Web page: http://www.econ.osaka-u.ac.jp/
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Keywords: earnings mobility; political economy; redistribution;

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References

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  3. Gonzalez-Eiras, Marti­n & Niepelt, Dirk, 2008. "The future of social security," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 197-218, March.
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