Income Inequality and Macroeconomic Fluctuations

Posted: 15 Sep 1997

See all articles by Murat Iyigun

Murat Iyigun

University of Colorado at Boulder - Department of Economics; Harvard University - Center for International Development (CID); IZA Institute of Labor Economics

Ann L. Owen

Hamilton College - Economics Department

Date Written: July 1997

Abstract

When per capita income is low, increases in income inequality make macroeconomic cycles less severe. We present a model in which access to credit is based on earnings potential. If low as well as middle income individuals are credit constrained, increases in income inequality lead to smaller fluctuations in aggregate consumption and output. Empirical evidence from cross-country data supports the view that greater income inequality causes lower variation of real consumption and output growth in low income countries. When per capita income is high, however, this effect is reversed.

JEL Classification: D31, E32

Suggested Citation

Iyigun, Murat F. and Owen, Ann L., Income Inequality and Macroeconomic Fluctuations (July 1997). Available at SSRN: https://ssrn.com/abstract=10784

Murat F. Iyigun (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-6653 (Phone)
303-492-8622 (Fax)

Harvard University - Center for International Development (CID) ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ann L. Owen

Hamilton College - Economics Department ( email )

198 College Hill Road
Clinton, NY 13323
United States
315-859-4419 (Phone)
303-859-4477 (Fax)

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