Knowra Trickle-down economics Trickle-down economics Trickle-down economics is the claim that policies benefiting businesses and wealthy people indirectly improve broad prosperity by encouraging investment, growth, and job creation.
Supply-side economics : An economic approach that seeks to raise output by improving incentives to produce, invest, and work. It supplies the incentive-based reasoning behind many policies labeled trickle-down.
Demand-side economics : An approach that emphasizes how spending by households, firms, and governments affects economic output. It prioritizes purchasing power and demand rather than incentives for producers and investors.
Economic Recovery Tax Act of 1981 : A United States law that reduced individual income tax rates and changed business tax provisions. Its large tax cuts under Ronald Reagan became a prominent test case for supply-side claims.
Marginal propensity to consume : The share of an additional unit of income that a person or household spends on consumption. Lower-income households often spend more of an extra dollar, affecting how tax cuts translate into demand.
Tax incidence : The distribution of a tax's economic burden among consumers, workers, and owners, regardless of who legally pays it. It determines who ultimately benefits when statutory business taxes change.
Marginal tax rate : The tax rate applied to an additional unit of income. Reducing top marginal rates is often expected to increase work, saving, or investment.
Keynesian economics : An economic framework in which aggregate demand influences output and employment, especially in the short run. It supports stimulating demand directly when private spending is weak.
Tax Reform Act of 1986 : A United States law that lowered statutory income tax rates while broadening the tax base. It shows how rate reductions can be paired with fewer deductions rather than simple across-the-board cuts.
Wealth inequality : The unequal distribution of net worth across individuals or households. Policies that raise asset values can widen disparities even when total output grows.
Difference-in-differences : A statistical method that estimates causal effects by comparing changes in treated and comparison groups. Researchers use it to distinguish tax-policy effects from broader economic trends.
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