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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 life cycle earnings mobility and redistributive politics. The model demonstrates that when an economy features a high opportunity of upward mobility and high risk of downward mobility, it attains a unique equilibrium where unskilled, low-income agents support a low redistribution because of the hope of upward mobility in future. In contrast, the economy attains multiple equilibria when mobility opportunity and risk are low: one is an unskilled-majority equilibrium defined by low mobility and the other is a skilled-majority equilibrium defined by high mobility. The paper gives a comparison between the political equilibrium and the social plannerfs allocation in terms of mobility, and shows that the skilled-majority equilibrium realizes mobility close to the optimal one.

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File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0818R4.pdf
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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.4.

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Length: 40 pages
Date of creation: Apr 2008
Date of revision: Oct 2012
Handle: RePEc:osk:wpaper:0818r4

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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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