To Create or to Redistribute? That is the Question

80 Pages Posted: 8 Mar 2021

See all articles by Demetris Koursaros

Demetris Koursaros

Cyprus University of Technology - Department of Commerce

Nektarios Michail

Cyprus University of Technology

Niki Papadopoulou

Central Bank of Cyprus

Christos S. Savva

Cyprus University of Technology - Department of Commerce, Finance and Shipping

Date Written: January 8, 2021

Abstract

This study attempts to explain low Gdp growth in the post-crisis period, which persisted despite aggressive easing of financial conditions. Agents utilize available funding by either investing in new capital creation or by acquiring existing assets for the capital gain (asset redistribution). The former increases total income and employment, while the latter alters the distribution of wealth amongst agents. Theoretical explanations and empirical evidence are provided to support the argument that during recessions investors deem it more profitable and lenders find it safer to fund re-purchases of existing assets, rather than create new assets. This trend exacerbates a recession and slows recovery as it deprives entrepreneurs of funding and thus alters the capital structure of the economy. Furthermore, this scenario provides an explanation of the phenomenon of rising inequality and social harm over the course of a recession. As asset redistribution is predominantly a privilege of the rich, an increase in inequality encourages more income redistribution, thus further exacerbating recessions. Finally, it is demonstrated that macroprudential policies promoting access to finance for new capital investments can discourage asset redistribution and potentially boost recovery during downturns.

Keywords: investment, business cycles, asset redistribution, inequality, capital misallocation

JEL Classification: E52, E25, E32, E21

Suggested Citation

Koursaros, Demetris and Michail, Nektarios and Papadopoulou, Niki and Savva, Christos S., To Create or to Redistribute? That is the Question (January 8, 2021). Available at SSRN: https://ssrn.com/abstract=3762361 or http://dx.doi.org/10.2139/ssrn.3762361

Demetris Koursaros (Contact Author)

Cyprus University of Technology - Department of Commerce ( email )

Pavlou Mela
Limassol
Cyprus

Nektarios Michail

Cyprus University of Technology ( email )

Limassol, 3603
Cyprus

Niki Papadopoulou

Central Bank of Cyprus ( email )

80 Kennedy Ave
1076 Nicosia
Cyprus

Christos S. Savva

Cyprus University of Technology - Department of Commerce, Finance and Shipping ( email )

Limassol, 3603
Cyprus
00357252349 (Phone)
00357252674 (Fax)

HOME PAGE: http://www.csavva.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
17
Abstract Views
167
PlumX Metrics