A Political Economy Model of Earnings Mobility and Redistribution Policy

Ryo Arawatari and Tetsuo Ono

No 08-18-Rev.4, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

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 fs allocation in terms of mobility, and shows that the skilled-majority equilibrium realizes mobility close to the optimal one.

Keywords: earnings mobility; political economy; redistribution (search for similar items in EconPapers)
JEL-codes: D30 D72 H20 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2008-04, Revised 2012-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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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 (2011)
Working Paper: A Political Economy Model of Earnings Mobility and Redistribution Policy (2010)
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