 A second chance at success: A political economy perspectiveJournal of Economic Theory, 2009, vol. 144, issue 3, 1249-1277 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; Stationary; Markov-perfect; equilibrium; Redistribution; Inequality; Upward; mobility; Intragenerational; mobility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:144:y:2009:i:3:p:1249-1277 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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