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Trickle Down Theory

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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.

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