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...

We develop a growth model with credit-fueled speculative asset bubbles. In our model, financial intermediaries (banks) use borrowed money to speculate on a risky asset bubble, which promises high returns as long as the bubble does not collapse. However, with limited liability, banks can default...