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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://www2.econ.osaka-u.ac.jp/library/global/e_HP/e_g_shiryo.html
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  1. J. Ignacio Conde-Ruiz & Vincenzo Galasso & Paola Profeta, 2005. "Early Retirement and Social Security: A Long Term Perspective," CESifo Working Paper Series 1571, CESifo Group Munich.
  2. D'Amato, Marcello & Galasso, Vincenzo, 2008. "Political Intergenerational Risk Sharing," CEPR Discussion Papers 6972, C.E.P.R. Discussion Papers.
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  5. 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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  7. Song, Zheng, 2008. "The Dynamics of Inequality and Social Security in General Equilibrium," MPRA Paper 10365, University Library of Munich, Germany.
  8. Ryo Arawatari & Tetsuo Ono, 2010. "Retirement and Social Security: A Political Economy Perspective," Discussion Papers in Economics and Business 10-04-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  9. Azariadis, Costas & Galasso, Vincenzo, 2002. "Fiscal Constitutions," Journal of Economic Theory, Elsevier, vol. 103(2), pages 255-281, April.
  10. 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.
  11. 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.
  12. Alberto Alesina & Eliana La Ferrara, 2001. "Preferences for Redistribution in the Land of Opportunities," Harvard Institute of Economic Research Working Papers 1936, Harvard - Institute of Economic Research.
  13. Thomas Piketty, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 551-584.
  14. Gonzalez-Eiras, Martín & Niepelt, Dirk, 2012. "Ageing, government budgets, retirement, and growth," European Economic Review, Elsevier, vol. 56(1), pages 97-115.
  15. 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.
  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.
  17. Gene M. Grossman & Elhanan Helpman, 1996. "Intergenerational Redistribution with Short-Lived Governments," NBER Working Papers 5447, National Bureau of Economic Research, Inc.
  18. Hassler, John & Storesletten, Kjetil & Zilibotti, Fabrizio, 2007. "Democratic public good provision," Journal of Economic Theory, Elsevier, vol. 133(1), pages 127-151, March.
  19. Bourguignon, F. & Morrisson, C. & Atkinson, A.B., 1991. "Empirical Studies of Earnings Mobility," DELTA Working Papers 91-14, DELTA (Ecole normale supérieure).
  20. Gonzalez-Eiras, Marti­n & Niepelt, Dirk, 2008. "The future of social security," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 197-218, 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. Song, Zheng, 2008. "Persistent Ideology and the Determination of Public Policies over Time," MPRA Paper 10364, University Library of Munich, Germany.
  23. 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.
  24. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2000. "Early Retirement," CEPR Discussion Papers 2589, C.E.P.R. Discussion Papers.
  25. Quadrini, Vincenzo, 1999. "Growth, learning and redistributive policies," Journal of Public Economics, Elsevier, vol. 74(2), pages 263-297, November.
  26. Arawatari, Ryo & Ono, Tetsuo, 2013. "Inequality, mobility and redistributive politics," Journal of Economic Theory, Elsevier, vol. 148(1), pages 353-375.
  27. 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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