To Create or to Redistribute? That is the Question

Koursaros Demetris (), Savva Christos (), Michail Nektarios () and Papadopoulou Niki ()
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Koursaros Demetris: Department of Finance, Accounting and Management Science, 121991 Cyprus University of Technology , 30 Archibishop Kyprianos av, 3036, Lemesos, Cyprus
Savva Christos: Department of Commerce, Finance and Shipping, Cyprus University of Technology, Lemesos, Cyprus
Michail Nektarios: Central Bank of Cyprus, 80 Kennedy Avenue, 1076, Nicosia, Cyprus
Papadopoulou Niki: Central Bank of Cyprus, 80 Kennedy Avenue, 1076, Nicosia, Cyprus

The B.E. Journal of Macroeconomics, 2024, vol. 24, issue 2, 929-995

Abstract: This study delves into the persistent low GDP growth observed in the post-crisis period, despite aggressive financial easing measures. It explores how economic agents allocate available funds, either through investments in new capital creation or the acquisition of existing assets for capital gains (asset redistribution). The former approach bolsters total income and employment, while the latter reshapes wealth distribution among agents. Through a combination of theoretical insights and empirical evidence, we argue that during economic downturns, investors often find it more lucrative, and lenders consider it safer, to finance the repurchasing of existing assets rather than investing in new ones. This trend not only worsens recessions but also hampers the recovery process by limiting entrepreneurs’ access to funding and altering the economy’s capital structure. Moreover, given that asset redistribution tends to benefit the wealthy, a surge in inequality fosters a cycle of income redistribution, further exacerbating economic downturns.

Keywords: investment; business cycles; asset redistribution; inequality; capital misallocation (search for similar items in EconPapers)
JEL-codes: E21 E25 E32 E52 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/bejm-2023-0191

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