On Poverty Traps, Rational Bubbles, and Wealth Inequality

Elvio Accinelli (), Laura Policardo () and Edgar J. Sanchez Carrera ()

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: This paper develops a dynamic general equilibrium (DGE) model with heterogeneous agents to connect three macroeconomic phenomena: persistent poverty traps, sluggish real growth, and rising wealth inequality. The model achieves this by allowing agents, who differ in patience and face a subsistence consumption constraint, to choose portfolios between productive capital and a fixed-supply, unproductive asset susceptible to rational speculative bubbles. The analysis reveals that these bubbles, while rational, induce a positive wealth effect for asset-holders, which, through optimal consumption-smoothing (via agents’ Euler equations), reduces the aggregate savings rate, permanently "crowding out" productive capital that crowds out productive investment, leading to lower real wages and output, which in turn exacerbates wealth inequality by pushing constrained agents closer to the poverty trap. A calibration exercise, disciplined by real-world stylized facts, illustrates the model’s path-dependence and highlights the particular vulnerability of middle-income economies to such collapses

Keywords: Poverty Traps; Wealth Inequality; Speculative Bubbles; Endogenous Savings; Portfolio Choice; Heterogeneous Agents; General Equilibrium; Subsistence Consumption. Jel Classification:D31; E21; E44; G12; O11; O40 (search for similar items in EconPapers)
Date: 2025-12
References: Add references at CitEc
Citations:

Downloads: (external link)
http://repec.deps.unisi.it/quaderni/936.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:936

Access Statistics for this paper

More papers in Department of Economics University of Siena from Department of Economics, University of Siena Contact information at EDIRC.
Bibliographic data for series maintained by Fabrizio Becatti ().