A Second Chance at Success: A Political Economy Perspective?Ryo Arawatari () and Tetsuo Ono No 08-04, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Abstract: This paper characterizes a stationary Markov perfect political equilibrium where agents vote over income taxation that distorts their 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 costs 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: one is characterized by high levels of upward mobility and inequality and a low tax burden supported by the rich, the other is characterized by low levels of upward mobility and inequality and a high tax burden supported by the poor. Numerical examples show that the low-cost economy is inferior to the high-cost economy in terms of social welfare. Keywords: Second chance; Political economy; Inequality; Upward mobility; Intragenerational mobility. (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:osk:wpaper:0804 Access Statistics for this paper More papers in Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) |
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