A Political Economy Model of Earnings Mobility and Redistribution Policy

Ryo Arawatari and Tetsuo Ono

Journal of Public Economic Theory, 2015, vol. 17, issue 3, 346-382

Abstract: This paper presents a politico-economic model that includes a mutual link between life cycle earnings mobility and redistributive politics. The model demonstrates that when an economy features a high opportunity of upward mobility and high risk of downward mobility, it attains a unique equilibrium where unskilled, low-income agents support a low redistribution because of the hope of upward mobility in future. In contrast, the economy attains multiple equilibria when mobility opportunity and risk are low: one is an unskilled-majority equilibrium defined by low mobility and the other is a skilled-majority equilibrium defined by high mobility. The paper gives a comparison between the political equilibrium and the social planner's allocation in terms of mobility, and shows that the skilled-majority equilibrium realizes mobility close to the optimal one.

Date: 2015
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Related works:
Working Paper: A Political Economy Model of Earnings Mobility and Redistribution Policy (2012)
Working Paper: A Political Economy Model of Earnings Mobility and Redistribution Policy (2011)
Working Paper: A Political Economy Model of Earnings Mobility and Redistribution Policy (2010)
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