Investopedia

Continue to Site »

Trickle Down Theory

Filed Under »
Dictionary Says

Definition of 'Trickle Down Theory'

An economic idea which states that decreasing marginal and capital gains tax rates, especially for corporations, investors and entrepreneurs, can stimulate production in the overall economy. According to trickle-down theory proponents, this stimulus leads to growth and wealth creation that benefits everyone, not just those who pay the lower tax rates.
Investopedia Says

Investopedia explains 'Trickle Down Theory'

President Reagan's economic policies, commonly referred to as "Reaganomics" or supply-side economics, were based on trickle-down theory. The idea is that with a lower tax burden and increased investment, business can produce more, increasing employment and worker pay.

A contrasting theory, Keynesianism, is based on stimulating demand through government spending and other government interventions. Trickle-down theory does not support government intervention in the economy.

Articles Of Interest

  1.

    How Your Tax Rate Is Determined

    Feel like the government always has its hand in your pocket? Learn the theory behind how it decides how much to take.

  2. What Is the Quantity Theory of Money?

    Take a look at the tenets, assumptions and challenges of monetarism's principal theory.

  3. Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!

  4. 5 ETFs Flaws You Shouldn't Overlook

    Despite their popularity, exchange traded funds have some drawbacks that investors should know about.

  5. Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!

  6. Liquidity Vs. Solvency

    Learn about the differences between these two words and how each one is used in the stock market.

  7. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.

  8. The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.

  9. R-Squared

    Learn more about this statistical measurement used to represent movement between a security and its benchmark.

  10. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  2. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  3. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  4. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  5. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  6. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
Trading Center