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
Traditional supply-side economics suggests that when economic activity (i.e. the activities of value-creating businesses) is less hampered by government controls or high taxation, it produces more economic benefits for the poor in the form of jobs and cheaper goods. "Trickle-down economics" is a pejorative term for a policy of cutting taxes on wealthy individuals to stimulate the economic activity of the businesses they own, as predicted by the Laffer curve. The extent to which any government has ever made "trickle-down" official policy is controversial.
The trickle-up effect 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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