Ryo Arawatari

A Second Chance at Success: A Political Economy Perspective

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.

Inequality, Mobility and Redistributive Politics

This paper develops a model where income inequality and intergenerational mobility are jointly determined via redistributive politics. The model includes two key factors: accessibility of tertiary education for poor-born agents and multiple self-fulfilling expectations of agents. Given these factors, the model provides predictions of cross-country differences in inequality and mobility consistent with empirical observations.

Inequality and public debt: A positive analysis

This study extends the multi-country, politico-economic model of fiscal policy developed by Song, Storesletten, and Zilibotti (2012) to incorporate wage inequal- ity within each country. In this extended framework, we present conflict over fiscal policy within and across generations and show that a low-inequality country real- izes tight fiscal policy with low public debt accumulation, whereas a high-inequality country experiences loose fiscal policy with high public debt. This model predic- tion is consistent with empirical evidence from OECD countries for the past three decades.

Old-age Social Security versus Forward Intergenerational Public Goods Provision

This paper introduces an overlapping-generations model with earnings hetero- geneity and borrowing constraints. The labor income tax and the allocation of tax revenue between social security and forward intergenerational public goods are determined in a bidimensional majoritarian voting game played by successive gen- erations. The political equilibrium is characterized by an ends-against-the-middle equilibrium where low- and high-income individuals form a coalition in favor of a lower tax rate and less social security while middle-income individuals favor a higher tax rate and greater social security. Government spending then shifts from social security to public goods provision if higher wage inequality is associated with the borrowing constraint and a high elasticity of marginal utility of youthful consump- tion.

Redistributive Politics and Government Debt in a Borrowing‐Constrained Economy

We develop a two-period, three-class of income model where low-income agents are borrowing constrained because of capital market imperfections, and where redistributive expenditure is financed by tax and government debt. When the degree of capital market imperfection is high, there is an ends-against-the-middle equilibrium where the constrained low-income and the unconstrained high-income agents favor low levels of government debt and redistributive expenditure; these agents form a coalition against the middle. In this equilibrium, the levels of government debt and expenditure are below the efficient levels, and the spread of income distribution results in a lower debt-to-GDP ratio.