When anti-poverty programs from the government have declining benefits as people earn higher incomes, this has the possibility of leading to poverty trap.
A poverty trap can be understood as a set of self-reinforcing mechanisms whereby countries start poor and remain poor: poverty begets poverty, so that current poverty is itself a direct cause of poverty in the future. The idea of a poverty trap has this striking implication for policy: much poverty is needless, in the sense that a different equilibrium is possible and one-time policy efforts to break the poverty trap may have lasting effects.
We conclude that these types of poverty traps are rare and largely limited to remote or otherwise disadvantaged areas. We discuss behavioral poverty traps as a recent area of research, and geographic poverty traps as the most likely form of a trap.
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