Finance Monthly. 39 Economics 101 What is trickle-down economics? In its simplest form, trickle-down economics is the theory that by increasing the wealth of the rich, they will spend more money, which would trickle down throughout society, leading to more wealth for all. How does trickle-down theory work? The theory itself is relatively simple, with the concept being that if we cut income and corporation taxes in our society and de-regulate our financial institutions, the increased wealth of these individuals and corporations would result in the rich being able to spend more of this additional money. The rich would then, in theory, invest and spend this new excess in wealth, which would, in turn, result in an increased demand for goods and services, increasing employers’ ability to recruit more staff and offer higher wages. In this theory, the argument presented is that cutting taxes increases the incentive to work. If workers have a lower income tax, they would then be incentivised to work longer. In addition, reducing taxes such as corporation tax Liz Truss Picture by: Simon Dawson
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