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A Political Economy Model of Earnings Mobility and Redistribution Policy

  • Ryo Arawatari

    ()

    (Faculty of Economics, Shinshu University)

  • Tetsuo Ono

    ()

    (Graduate School of Economics, Osaka University)

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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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
Contact details of provider: Web page: http://www.econ.osaka-u.ac.jp/
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  1. Dirk Niepelt & Martín Gonzalez-Eiras, 2011. "Ageing, Government Budgets, Retirement, and Growth," Working Papers 11.06, Swiss National Bank, Study Center Gerzensee.
  2. Arawatari, Ryo & Ono, Tetsuo, 2013. "Inequality, mobility and redistributive politics," Journal of Economic Theory, Elsevier, vol. 148(1), pages 353-375.
  3. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers 2003-03, FEDEA.
  4. Marcello D'Amato & Vincenzo Galasso, 2009. "Political Intergenerational Risk Sharing," CSEF Working Papers 216, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  5. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2012. "Rotten Parents and Disciplined Children: A Politico‐Economic Theory of Public Expenditure and Debt," Econometrica, Econometric Society, vol. 80(6), pages 2785-2803, November.
  6. Hassler, John & Storesletten, Kjetil & Zilibotti, Fabrizio, 2007. "Democratic public good provision," Journal of Economic Theory, Elsevier, vol. 133(1), pages 127-151, March.
  7. Thomas Piketty, 1994. "Social Mobility and Redistributive Politics," Working papers 94-15, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. 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.
  9. 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.
  10. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, vol. 93(1), pages 87-112, March.
  11. Grossman, G.M. & Helpman, E., 1996. "Intergenerational Redistribution with Short-Lived Governments," Papers 178, Princeton, Woodrow Wilson School - Public and International Affairs.
  12. Alesina, Alberto & La Ferrara, Eliana, 2005. "Preferences for redistribution in the land of opportunities," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 897-931, June.
  13. Bénabou, Roland & Ok, Efe A, 1998. "Social Mobility and the Demand for Redistribution: the POUM Hypothesis," CEPR Discussion Papers 1955, C.E.P.R. Discussion Papers.
  14. Bourguignon, F. & Morrisson, C. & Atkinson, A.B., 1991. "Empirical Studies of Earnings Mobility," DELTA Working Papers 91-14, DELTA (Ecole normale supérieure).
  15. Hassler, John & Krusell, Per & Storesletten, Kjetil & Zilibotti, Fabrizio, 2005. "The dynamics of government," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1331-1358, October.
  16. 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.
  17. Martin Gonzalez-Eiras & Dirk Niepelt, 2007. "The Future of Social Security," Working Papers 07.02, Swiss National Bank, Study Center Gerzensee.
  18. Quadrini, Vincenzo, 1999. "Growth, learning and redistributive policies," Journal of Public Economics, Elsevier, vol. 74(2), pages 263-297, November.
  19. 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).
  20. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  21. La Ferrara, Eliana & Alesina, Alberto, 2005. "Preferences for Redistribution in the Land of Opportunities," Scholarly Articles 4552533, Harvard University Department of Economics.
  22. Zheng Song, 2011. "The Dynamics of Inequality and Social Security in General Equilibrium," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 613-635, October.
  23. Song, Zheng, 2008. "Persistent Ideology and the Determination of Public Policies over Time," MPRA Paper 10364, University Library of Munich, Germany.
  24. 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.
  25. Martin Gonzalez-Eiras, 2011. "Social security as Markov equilibrium in OLG models: a note," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 549-552, July.
  26. Zheng Song & Kaiji Chen, 2009. "Markovian Social Security in Unequal Societies," 2009 Meeting Papers 318, Society for Economic Dynamics.
  27. Azariadis, Costas & Galasso, Vincenzo, 2002. "Fiscal Constitutions," Journal of Economic Theory, Elsevier, vol. 103(2), pages 255-281, April.
  28. Glomm, Gerhard & Ravikumar, B., 1996. "Endogenous public policy and multiple equilibria," European Journal of Political Economy, Elsevier, vol. 11(4), pages 653-662, April.
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