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To Create or to Redistribute? That is the Question

Author

Listed:
  • 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)

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.

Suggested Citation

  • Koursaros Demetris & Savva Christos & Michail Nektarios & Papadopoulou Niki, 2024. "To Create or to Redistribute? That is the Question," The B.E. Journal of Macroeconomics, De Gruyter, vol. 24(2), pages 929-995.
    • Handle: RePEc:bpj:bejmac:v:24:y:2024:i:2:p:929-995:n:1005
    DOI: 10.1515/bejm-2023-0191
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    More about this item

    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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