A Political Economy Model of Earnings Mobility and Redistribution Policy

Ryo Arawatari and Tetsuo Ono

No 08-18-Rev.2, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This paper presents a politico-economic model including a mutual link between earnings mobility and redistribution policy affected by human capital risk. The model demonstrates that a low-risk economy produces multiple equilibria: an unskilled- majority equilibrium with lower mobility and higher redistribution, and a skilled- majority equilibrium with higher mobility and lower redistribution. In contrast, a high-risk economy produces a unique, unskilled-majority equilibrium with high mobility and low redistribution, which supports the POUM (prospect of upward mobility) hypothesis. In the latter economy, a further increase in risk may improve the expected utility of agents.

Keywords: earnings mobility; human capital risk; political economy; stationary Markov perfect equilibrium; redistribution (search for similar items in EconPapers)
JEL-codes: D30 D72 H20 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2008-04, Revised 2010-09
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Related works:
Journal Article: A Political Economy Model of Earnings Mobility and Redistribution Policy (2015)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:0818r2

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