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A Second Chance at Success: A Political Economy Perspective

  • Ryo Arawatari


    (Graduate School of Economics, Osaka University)

  • Tetsuo Ono


    (Graduate School of Economics, Osaka University)

This paper characterizes a stationary Markov-perfect political equilibrium where agents vote over income taxation that distorts 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 cost 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 with various patterns of upward mobility, inequality and redistribution. Numerical examples show that the shift from a high-cost economy to a low-cost economy may reduce social welfare.

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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-Rev.

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Length: 47 pages
Date of creation: Jan 2008
Date of revision: Jul 2008
Handle: RePEc:osk:wpaper:0804r
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  5. 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. Tetsuo Ono & Ryo Arawatari, 2008. "Dynamic political economy of redistribution policy: the role of education costs," Economics Bulletin, AccessEcon, vol. 4(13), pages 1-13.
  22. Jarvis, Sarah & Jenkins, Stephen P, 1998. "How Much Income Mobility Is There in Britain?," Economic Journal, Royal Economic Society, vol. 108(447), pages 428-43, March.
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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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