Trickle up effect

The trickle up effect is an economic theory used to describe the flow of wealth from the poor to the affluent; it is opposite to the trickle down effect.

Relationship to the trickle down effect

Proponents of the trickle down effectWho|date=September 2007 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 the society as a whole and thus those benefits will, in effect, "trickle up" to benefits for the wealthy. [cite book |title=Aid |last=Degnbol-Martinussen |first=John |coauthors=Poul Engberg-Pedersen |year=2003 |publisher=Zed Books |isbn=9781842770399 |pages=p. 21 |url=http://books.google.co.uk/books?id=2w0RM2P_egkC&pg=PA21&dq=%22Trickle+up+effect%22&num=100&as_brr=3&client=firefox-a&sig=ACfU3U2ZdvjGcsvVJwi0Md6RXjzI8XDLyA |accessdate=2008-10-11]

Possible causes

The trickle up effect states that benefits to the wealthy will be realized due to an increase in sales relative to the amount of benefits that are given to the poor. The trickle up effect argues itself as more effective than the trickle down effect because people who have less tend to buy more. In other words, the poor are more inclined than the wealthy to spend their money. This being so, proponents of the trickle up effect believe that if the lower and lower-middle classes are given benefits, such as tax breaks or subsidies, the increased funds would be spent at a much higher rate than would the upper class, given similar fund increases. Furthermore, the trickle up effect argues, many upper-class individuals do not spend their entire yearly salary to begin with, which is an indication that they will not spend any additional funds. Instead, they will save additional funds, thereby withholding those funds from the economy and increasing the gap between the rich and the poor. The trickle up effect avoids this pitfall by giving more money to those who would be more inclined to spend it.

References

ee also

* Gini coefficient
* Wealth condensation