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The Political Economy of Earnings Mobility and Redistribution Policy

Author

Listed:
  • Ryo Arawatari

    (Faculty of Economics, Shinshu University)

  • Tetsuo Ono

    (Graduate School of Economics, Osaka University)

Abstract

This paper presents a politico-economic model including a mutual link between earnings mobility and redistribution policy affected by human capital risk. A lowrisk economy produces multiple equilibria: a poor-majority equilibrium with lower mobility and higher redistribution and a rich-majority equilibrium with higher mobility and lower redistribution. In contrast, a high-risk economy produces a unique, poor-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.

Suggested Citation

  • Ryo Arawatari & Tetsuo Ono, 2008. "The Political Economy of Earnings Mobility and Redistribution Policy," Discussion Papers in Economics and Business 08-18-Rev, Osaka University, Graduate School of Economics, revised Apr 2009.
    • Handle: RePEc:osk:wpaper:0818r
    as

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    More about this item

    Keywords

    earnings mobility; political economy; stationary Markov perfect equilibrium; redistribution;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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