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On the Distributional Effects of Bank Bailouts

Josef Schroth

Review of Economic Dynamics, 2021, vol. 40, 252-277

Abstract: This paper studies distributional consequences of equity injections that are funded with financial-sector levies. In the model economy, financial intermediation supports both productive investment and individual consumption smoothing, subject to an equity requirement. When intermediary equity is low, then an equity injection involves a trade-off between increasing credit supply immediately and distortive levies that reduce credit supply in the future. I find that equity injections redistribute from poor to wealthy households, even though average welfare increases. While wealthy savers benefit greatly from an increased return on savings, poor households suffer from lower future wages. (Copyright: Elsevier)

Keywords: Financial crisis; Equity injection; Incomplete markets; Distributional effects (search for similar items in EconPapers)
JEL-codes: E13 E44 G01 G21 G28 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.red.2020.09.010

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