A theory of economic development that claims higher standards of living for the poor will develop gradually and not at the overt expense of the more affluent.
Also see: dual economy theory
“Trickle-down theory” can refer to two different but related concepts:
- Trickle-down effect, a model of product adoption in marketing
- Trickle-down economics, a theory for tax cuts on high incomes and business activity
Trickle-down economics, also known as trickle-down theory or the horse and sparrow theory, is the economic proposition that taxes on businesses and the wealthy in society should be reduced as a means to stimulate business investment in the short term and benefit society at large in the long term. In recent history, the term has been used by critics of supply-side economic policies, such as “Reaganomics”. Whereas general supply-side theory favors lowering taxes overall, trickle-down theory more specifically targets taxes on the upper end of the economic spectrum. Empirical evidence shows that the proposition has never managed to achieve its stated goals.
The term “trickle-down” originated as a joke by humorist Will Rogers and today is often used to criticize economic policies that favor the wealthy or privileged while being framed as good for the average citizen. David Stockman, who as Ronald Reagan’s budget director championed Reagan’s tax cuts at first, later became critical of them and told journalist William Greider that “supply-side economics” is the trickle-down idea:
It’s kind of hard to sell ‘trickle down,’ so the supply-side formula was the only way to get a tax policy that was really ‘trickle down.’ Supply-side is ‘trickle-down’ theory.— David Stockman, The Atlantic
Political opponents of the Reagan administration soon seized on this language in an effort to brand the administration as caring only about the wealthy. Some studies suggest a link between trickle-down economics and reduced growth, and a 2020 study which analyzed 50 years of data concluded that trickle-down economics does not promote jobs or growth, and that “policy makers shouldn’t worry that raising taxes on the rich […] will harm their economies”. Trickle-down economics has been widely criticized, particularly by left-wing, centre-left and moderate politicians and economists, but also some right-wing politician
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