IMF Repudiates Republican Poster-Child of Economics: Trickle Down

Angela Colaizzi

 

Trickle-down policies not only fail to promote national economic growth, they actually hurt it, according to a new study by the International Monetary Fund (IMF).

When incomes rise for the bottom 20 percent of earners, GDP improves, but when incomes rise for the top 20 percent of earners, GDP actually declines, five IMF economists conclude in their June report, “Causes and Consequences of Income Inequality : A Global Perspective.”

The researchers compared data from 159 advanced, emerging and developing economies, analyzing the relationships between GDP growth rates, wealth gaps, and other markers of economic stability, including poverty rates, worker productivity, economic mobility, and access to financial services.

Economies that relied on trickle down policies experienced higher levels of income inequality and lower GDPs, the IMF study found.  Citizens in these countries had fewer opportunities for economic advancement and productivity suffered.

In short, the study says, trickle down does not work. Republicans have promoted this failed economic policy for nearly 40 years.

To promote healthy economic growth countries need “trickle-up” – policies that directly increase the income for the bottom 20 percent, the study concludes.  

Tax breaks and other policies aimed at top earners benefit only the rich who siphon money out of the productive economy and into personal savings and investments. Working people, on the other hand, are consumers who spend the bulk of their income and continue to spend as their incomes rise. That spending increases GDP.

The IMF study warns that tax breaks for the wealthy and other government policies that help the rich get richer damage a country’s GDP. By contrast, the study found that policies that increase the income of the poor and workers improve GDP. The economists determined that more money at the bottom works harder to benefit the economy.

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