Academics David Hope and Julian Limberg show in this study in the Socio-Economic Review that tax cuts increase inequality and do not promote growth
“We find tax cuts for the rich lead to higher income inequality in both the short- and medium-term. In contrast, such reforms do not have any significant effect on economic growth or unemployment. Our results therefore provide strong evidence against the influential political–economic idea that tax cuts for the rich ‘trickle down’ to boost the wider economy.”
Tricke down promoting growth is precisely the justification cited by the government last week for its tax cuts aimed at the wealthy. “We believe high taxes reduce incentives to work, deter investment and hinder enterprise,” Kwarteng said in the House of Commons.
President Biden last week poured scorn on trickle down economics saying on Twitter:
“I am sick and tired of trickle-down economics. It has never worked.”
“We’re building an economy from the bottom up and middle out.”
The IMF itself is on record in this paper in 2015 saying that trickle down is ineffective : “We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down. This suggests that policies need to be country specific but should focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class. To tackle inequality, financial inclusion is imperative in emerging and developing countries while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive.”
