Traditionally, general-equilibrium models have taken effective property rights to be given and have been concerned only with analysing the allocation of resources among productive uses and the distribution of the resulting product. But, this formulation of the economic problem is incomplete...

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...