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A Political Economy Model of Earnings Mobility and Redistribution Policy

  • Ryo Arawatari

    ()

    (Graduate School of Economics, Nagoya University)

  • Tetsuo Ono

    ()

    (Graduate School of Economics, Osaka University)

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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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
Contact details of provider: Web page: http://www.econ.osaka-u.ac.jp/
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  1. Alberto Alesina & Eliana La Ferrara, . "Preferences for Redistribution in the Land of Opportunities," Working Papers 178, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August.
  3. Ryo Arawatari & Tetsuo Ono, 2008. "A Second Chance at Success: A Political Economy Perspective," Discussion Papers in Economics and Business 08-04-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Jul 2008.
  4. 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.
  5. Dirk Niepelt & Martín Gonzalez-Eiras, 2011. "Ageing, Government Budgets, Retirement, and Growth," Working Papers 11.06, Swiss National Bank, Study Center Gerzensee.
  6. Roland Benabou & Efe A. Ok, 1998. "Social Mobility and the Demand for Redistribution: The POUM Hypothesis," NBER Working Papers 6795, National Bureau of Economic Research, Inc.
  7. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2007. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," 2007 Meeting Papers 685, Society for Economic Dynamics.
  8. J. Ignacio Conde-Ruiz & Vincenzo Galasso, 2003. "Early Retirement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 12-36, January.
  9. Arawatari, Ryo & Ono, Tetsuo, 2013. "Inequality, mobility and redistributive politics," Journal of Economic Theory, Elsevier, vol. 148(1), pages 353-375.
  10. Glomm, Gerhard & Ravikumar, B., 1996. "Endogenous public policy and multiple equilibria," European Journal of Political Economy, Elsevier, vol. 11(4), pages 653-662, April.
  11. Martin Gonzalez-Eiras & Dirk Niepelt, 2007. "The Future of Social Security," Working Papers 07.02, Swiss National Bank, Study Center Gerzensee.
  12. Grossman, Gene & Helpman, Elhanan, 1996. "Intergenerational Redistribution with Short-lived Governments," CEPR Discussion Papers 1396, C.E.P.R. Discussion Papers.
  13. Hassler, John & Storesletten, Kjetil & Zilibotti, Fabrizio, 2007. "Democratic public good provision," Journal of Economic Theory, Elsevier, vol. 133(1), pages 127-151, March.
  14. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  15. 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).
  16. 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.
  17. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2001. "The survival of the welfare state," Economics Working Papers 603, Department of Economics and Business, Universitat Pompeu Fabra.
  18. D'Amato, Marcello & Galasso, Vincenzo, 2010. "Political intergenerational risk sharing," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 628-637, October.
  19. Song, Zheng, 2008. "Persistent Ideology and the Determination of Public Policies over Time," MPRA Paper 10364, University Library of Munich, Germany.
  20. 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.
  21. Zheng Song & Kaiji Chen, 2009. "Markovian Social Security in Unequal Societies," 2009 Meeting Papers 318, Society for Economic Dynamics.
  22. Martín Gonzalez Eiras, 2010. "Social Security as Markov Equilibrium in OLG Models: A Note," Working Papers 105, Universidad de San Andres, Departamento de Economia, revised Sep 2010.
  23. Bourguignon, F. & Morrisson, C. & Atkinson, A.B., 1991. "Empirical Studies of Earnings Mobility," DELTA Working Papers 91-14, DELTA (Ecole normale supérieure).
  24. Azariadis, Costas & Galasso, Vincenzo, 2002. "Fiscal Constitutions," Journal of Economic Theory, Elsevier, vol. 103(2), pages 255-281, April.
  25. 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.
  26. Quadrini, Vincenzo, 1999. "Growth, learning and redistributive policies," Journal of Public Economics, Elsevier, vol. 74(2), pages 263-297, November.
  27. La Ferrara, Eliana & Alesina, Alberto, 2005. "Preferences for Redistribution in the Land of Opportunities," Scholarly Articles 4552533, Harvard University Department of Economics.
  28. 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.
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