Inequality and Risky Asset Bubbles

8 Pages Posted: 2 Jul 2016

See all articles by Julien Bengui

Julien Bengui

Toan Phan

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: June 27, 2016

Abstract

We provide a simple rational bubble model demonstrating that a concentration of income is necessary and sufficient for the existence of equilibria with risky speculative bubbles. Income concentration among top earners leads to excess savings and depressed interest rates, which facilitate the emergence of risky bubbles and increase their equilibrium size. In this context, policies such as progressive taxation can have a macroprudential effect of reducing the existence region, riskiness and size of bubbles.

Keywords: income inequality, rational bubble

JEL Classification: E20, E30

Suggested Citation

Bengui, Julien and Phan, Toan, Inequality and Risky Asset Bubbles (June 27, 2016). Available at SSRN: https://ssrn.com/abstract=2803377 or http://dx.doi.org/10.2139/ssrn.2803377

Toan Phan (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

No contact information is available for Julien Bengui

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