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A second chance at success: A political economy perspective

Author

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  • Arawatari, Ryo
  • Ono, Tetsuo
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.

Suggested Citation

  • Arawatari, Ryo & Ono, Tetsuo, 2009. "A second chance at success: A political economy perspective," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1249-1277, May.
    • Handle: RePEc:eee:jetheo:v:144:y:2009:i:3:p:1249-1277
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    Citations

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    Cited by:

    1. Weiguang Liu, 2020. "Individual health perspective, income protection insurance coverage and human capital growth," Economics Bulletin, AccessEcon, vol. 40(1), pages 177-187.
    2. Yuki Uchida & Tetsuo Ono, 2020. "Inequality and education choice," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(4), pages 980-1018, August.
    3. Uchida, Yuki & Ono, Tetsuo, 2022. "Politics of Public Education and Pension Reform with Endogenous Fertility," MPRA Paper 112748, University Library of Munich, Germany.
    4. Arawatari, Ryo & Ono, Tetsuo, 2013. "Inequality, mobility and redistributive politics," Journal of Economic Theory, Elsevier, vol. 148(1), pages 353-375.
    5. Ryo Arawatari & Tetsuo Ono, 2015. "Redistributive Politics And Government Debt In A Borrowing-Constrained Economy," Bulletin of Economic Research, Wiley Blackwell, vol. 67(1), pages 83-103, January.
    6. Weiguang Liu, 2021. "Human capital accumulation, income protection insurance and poverty reduction in the least developed countries," Australian Economic Papers, Wiley Blackwell, vol. 60(2), pages 361-372, June.
    7. Ryo Arawatari & Tetsuo Ono, 2008. "The Political Economy of Occupational Mobility and Redistribution Policy," Discussion Papers in Economics and Business 08-18, Osaka University, Graduate School of Economics.
    8. Ryo Arawatari & Tetsuo Ono, 2015. "A Political Economy Model of Earnings Mobility and Redistribution Policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(3), pages 346-382, June.
    9. Ryo Arawatari & Tetsuo Ono, 2011. "A Political Economy Theory of Government Debt and Social Security," Discussion Papers in Economics and Business 11-33, Osaka University, Graduate School of Economics.
    10. Arawatari, Ryo & Ono, Tetsuo, 2009. "A second chance at success: A political economy perspective," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1249-1277, May.
    11. Tetsuo Ono, 2014. "Economic Growth and the Politics of Intergenerational Redistribution," Discussion Papers in Economics and Business 14-17, Osaka University, Graduate School of Economics.
    12. Weiguang Liu, 2018. "The Self-Ful?lling Discriminations and Mismatches for Old Workers and Poor Workers," Applied Economics and Finance, Redfame publishing, vol. 5(1), pages 58-74, January.

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    More about this item

    Keywords

    Second chance Political economy Stationary Markov-perfect equilibrium Redistribution Inequality Upward mobility Intragenerational mobility;

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • 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

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