Abstract
We present a positive theory of capital market frictions that raise the cost of capital for new firms and lower the cost of capital for incumbent firms. Capital market frictions arise from a political conflict across voters who differ in two dimensions: (i) a fraction of voters owns capital, the rest receives only lab or income; and (ii) voters have different vintages of human capital. We identify young workers as the decisive voter group, with preferences in between capitalists who favor a free capital market, and old workers, who favor restricted capital mobility. We show that capital market frictions do not naturally arise in a static framework, or even in a dynamic framework if capital market frictions are reversible. But if capital market frictions can be made to p ersist over time, we show that young workers favor capital market frictions as a way to smo oth income, especially if wealth is concentrated and if technological obsolescence is high.
Original language | English |
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Publication date | 2013 |
Number of pages | 44 |
Publication status | Published - 2013 |
Event | 2013 Annual Meeting of the Society for Economic Dynamics - Yonsei University, Seoul, Korea, Republic of Duration: 27 Jun 2013 → 29 Jun 2013 https://www.economicdynamics.org/sed2013.htm |
Conference
Conference | 2013 Annual Meeting of the Society for Economic Dynamics |
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Location | Yonsei University |
Country/Territory | Korea, Republic of |
City | Seoul |
Period | 27/06/2013 → 29/06/2013 |
Internet address |