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Working Economy: IMF – Tax Cuts No Way to Grow

In a working economy, the economy would grow and gains would be shared by labor and capital as both have a role in production.

Back in 2015 the International Monetary Fund (IMF), known mostly for its austerity driven policies looked at the effects of tax cuts for the wealthy and raising incomes at both the top and bottom levels of income. They studied 150 countries and came to the following conclusions:

The researchers calculated that when the richest 20% of society increase their income by one percentage point, the annual rate of growth shrinks by nearly 0.1% within five years.

This shows that “the benefits do not trickle down,” the researchers wrote in their report, which analyzed over 150 countries.

By contrast, when the lowest 20% of earners see their income grow by one percentage point, the rate of growth increases by nearly 0.4% over the same period.

 

Sources:

The ‘trickle down theory’ is dead wrong by Alanna Petroff (CNN Money)
June 15, 2015: 12:35 PM ET (http://money.cnn.com/2015/06/15/news/economy/trickle-down-theory-wrong-imf/)

Causes and Consequences of Income Inequality : A Global Perspective    (https://www.imf.org/external/pubs/cat/longres.aspx?sk=42986.0)

 

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