The trickle-up effect or fountain effect is an economic theory used to describe the overall aggregate demand of households and middle-class people to drive and support the economy. The theory was founded by John Maynard Keynes (1883-1946). It is sometimes referred as Keynesian economics in which stimulation is enhanced when the government lowers taxes on the middle class and increases government spending.
Relationship to the trickle-down effect
Proponents of the trickle-down effect believe that a free market, which is uninhibited by heavy taxation and other forms of government controls, will cause an increase in wealth for society as a whole, part of which will "trickle down" from the affluent to the less wealthy, making the latter group better off. In this model, relative poverty may increase, but proponents state that this is a moot point because absolute poverty decreases. Opponents to this theory may point out that a large gap in the distribution of wealth can lead to a similarly large gap in power and influence, thus making this economic model undesirable. The trickle-down effect is usually used to describe a process by which benefits to the wealthy "trickle down" to benefits for the poor. The trickle-up effect, in a corollary to this, states that benefiting the poor directly (for example through micro loans) will boost the productivity of society as a whole and thus those benefits will, in effect, "trickle up" to benefits for the wealthy.
- Degnbol-Martinussen, John; Poul Engberg-Pedersen (2003). Aid. Zed Books. p. 21. ISBN 978-1-84277-039-9. Retrieved 2008-10-11.
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