Trickle-Down Economics Fails a Sophisticated Statistical Test
Here’s the wizardry behind two scholars’ questioning of tax cuts for the rich.
Last week two British scholars released a study (PDF) concluding that trickle-down economics doesn’t work. Trickle-down theory says cutting taxes on rich people will encourage them to work and invest more, ultimately creating jobs and benefiting everyone. In reality, it increases inequality while not having “any significant effect on economic growth and unemployment,” wrote David Hope, a visiting fellow at the London School of Economics’ International Inequalities Institute, and Julian Limberg, a lecturer in political economy at King’s College London.
The study was widely covered, including in this Bloomberg story. But articles haven’t explored how it was that these two scholars managed to undermine a theory that, while questioned, has been used to justify every major tax cut on the rich in recent decades, including the Tax Cuts and Jobs Act of 2017, which remains President Trump’s most notable achievement.