Investopedia

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. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.
  2. 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.
  3. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.
  4. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.
  5. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.
  6. Lease To Own

    An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time.
Trading Center