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
Trickle-down economics is a rhetorical term used to criticise free market economics. No economist has ever supported trickle-down economics, which is the idea that giving the wealthy tax breaks will encourage them to spend more, and so this wealth will "trickle down" to the less wealthy. In fact, free-market economics suggests that additional wealth will be created if businesses are less hampered by government controls or high taxation.
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.
- "Why attack ‘trickle-down economics?’ It doesn’t exist – and never has done".
- 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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