A Second Chance at Success: A Political Economy Perspective

Ryo Arawatari and Tetsuo Ono

No 08-04-Rev, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: 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.

Keywords: Second chance; Political economy; Inequality; Upward mobility; Intragenerational mobility. (search for similar items in EconPapers)
JEL-codes: D30 D72 H55 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2008-01, Revised 2008-07
New Economics Papers: this item is included in nep-pol
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: A second chance at success: A political economy perspective (2009)
Working Paper: A Second Chance at Success: A Political Economy Perspective? (2008)
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