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Trickle-Down Economics Has Only Made The Rich Richer, Study Finds

by : Julia Banim on : 27 Dec 2020 14:28
Trickle-Down Economics Has Only Made The Rich Richer, Study FindsPA Images

A study from the London School of Economics (LSE) has found that trickle-down economics has only served to make the rich richer.

The study, conducted by LSE’s International Inequalities Institute, looked at the economic consequences of major tax cuts for the wealthy, and the impact this has had on factors such as income inequality, economic growth and unemployment.

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After examining five decades worth of tax cuts in 18 wealthy nations, authors David Hope and Julian Limberg found the practice consistently benefited the rich but had no significant impact on either unemployment or economic growth.

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According to the key findings of the study:

First, we use a new encompassing measure of taxes on the rich to identify instances of major reduction in tax progressivity.

Then, we look at the causal effect of these episodes on economic outcomes by applying a nonparametric generalization of the difference-in-differences indicator that implements Mahalanobis matching in panel data analysis.

We find that major reforms reducings taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.

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Trickle-down economics is the theory that tax breaks and benefits for businesses and the rich will eventually trickle down to everyone else, benefitting all members of society.

The theory makes the argument for income and capital gains tax breaks or other financial benefits for big businesses, investors and entrepreneurs as a means of stimulating economic growth.

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It’s based on the assumptions that all members of society, whether they are rich or not, will ultimately benefit from economic growth, with growth being most likely to come from those who have the resources and skills needed to boost productive output.

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However, the recent findings appear to show that trickle-down economics doesn’t quite have the desired effect for society as a whole that many had hoped it to have.

Indeed, it would seem that major tax cuts primarily benefit the enormously wealthy, who don’t exactly need any more financial assistance, offering very little benefit for ordinary working people.

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Julia Banim

Jules studied English Literature with Creative Writing at Lancaster University before earning her masters in International Relations at Leiden University in The Netherlands (Hoi!). She then trained as a journalist through News Associates in Manchester. Jules has previously worked as a mental health blogger, copywriter and freelancer for various publications.

Topics: Life, Money, Now, Wealth

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    The economic consequences of major tax cuts for the rich