The trickle economy, also known as the trickle or spill theory, is a type of economic proposal that is based on the fact that taxes on companies and people with high incomes must be reduced to stimulate “private business investment” in the short term, which would benefit society in the long term. While the general supply-side theory favors tax reduction generally, the “trickle-down theory” focuses specifically on reducing taxes for companies and individuals at the higher end of the economic system.
Supply-side economics argues that economic growth can be achieved with measures that increase aggregate supply by reducing barriers for people or companies producing goods and services, reducing taxes, and greater flexibility in regulations tributary. Depending on supply economics, consumers will benefit from a greater supply of goods and services at lower prices. Frequent recommendations from “supply economists” are lower tax rates and less legal regulation of economic activity.
Drip Theory Benefits
The trickle-down theory is based on the fact that the most profitable people and companies are the ones that produce the best goods and services, so focusing the benefits on this segment will make these companies and people more productive, which will have an impact on a greater amount of jobs, more taxes in addition to creating higher quality products and services.
A little history
The term “drip” was born from a joke by the comedian named Will Rogers (who used the phrase trickle-down in English); at present, this term is frequently used to criticize the economic policies that, in some way, continue to favor high-income companies and individuals.
Contemporary criticisms of the trickle theory
The economist Joseph Stiglitz, in his book The Price of Inequality, affirms that the trickle economy retards economic growth since when the rich have more money, they tend to save instead of reinvesting it in society through consumption, for what fiscal policies should favor first of all those people who are at the base of the social pyramid, that is, the poorest, so that these people have to spend on goods and services of the real economy, in this way, that wealth would be distributed through the market to the general group of society.
However, it should be taken into account that Stiglist is making a generalization by stating that “all” high-income people and companies “save” their earnings, although there may be high-income people who if they do this, we must also take into account that many high-income companies tend to “reinvest” their profits to grow their business or company, resulting in more jobs and generating more income for the state through taxes, as well as contributing to different social causes.
What do you think about this topic? Do you think the “trickle economy” deserves so much criticism?
If you want more information about our products and services, you can contact us or write your query below (comments section).
Image by moerschy via Pixabay.com under Creative Commons license.