"Trickle down Theory: Historical Perspective and Future.

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The idea of “trickle-down” originated from political debates to describe the economic policies of a party or politician. There was never a formal concept of “trickle-down economics” in the sense of economic theory. The term-of-art was used to describe policies that directly benefited to rich but were justified by arguments they would ultimately also benefit the middle class and poor. In fact, The term was first introduced by humorist Will Rogers in a column critiquing then-President Herbert Hoover’s economic policies.Trickle-Down Economics is an economic theory that suggests benefits provided to the wealthy and businesses will eventually "trickle down" to the rest of the economy. The theory posits that tax cuts, deregulation, and policies that benefit corporations and the rich will spur investment, job creation, and economic growth, which will benefit all economic classes.

Government of India  passed a law in August 2019 to cut corporate tax rates, the rate for existing companies reducing from 30 to 22%, and that of new companies from 25 to 15%. It was an effort to repair Economic growth with  $20 billion tax cut. It's effects were not as vibrant due to the COVID pandemic that followed.

 Any policy can be considered "trickle-down" if the following are true:

  -A principal mechanism of the policy disproportionately benefits wealthy businesses and       individuals in the short run.

-The policy is designed to boost standards of living for all individuals in the long run.


Critique of Trickle-Down Economics

It can create income inequalities by only benefiting wealthy.

It can culminate into limited impact on GDP growth and job creation.

It can also lead to higher budget deficit and higher National debt.

Potentially lead to reduced investment in public sector.


Real-World Examples:-

Reaganomics (1980s)- US President Ronald reagan implemented tax cuts for high-income earners and corporations. While it helped in economic expansion but it also lead to income inequalities. 

Bush Tax Cuts (2001) - President George bush's text cuts were at stimulating economic growth while economy experience growth, It also lead to rising inequality and budget deficit.

Kansas Tax Experiment (2012)- Kansas governor implemented substantial text cuts which were intended to Boost economic growth while it presented in budget shortfall and underfunding of public services.

Trump tax cuts (2017)-  United States President Trump gave takes cuts to high income corporate business which resulted in less revenue to government.


In conclusion, the trickle-down effect remains a debated concept. While it aims to stimulate overall economic growth by first benefiting the wealthy and businesses, its real-world outcomes often show that wealth doesn't always "trickle down" as expected. Instead, it can lead to greater income inequality, with limited benefits for lower-income individuals, raising questions about its effectiveness in reducing poverty or improving the broader economy




About the Author- 

A second-year student at Aligarh Muslim University, Syed Faizan Parvaiz is an active member of the AMU Economics Students Club (AESC). He is dedicated to enhancing academic and personal growth, contributing to initiatives that promote economic literacy and collaboration among students.



Copyright ©️ AESC

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