Research Over the Past 50 Years on Developed Countries
Contrary to Expectations, Wealthy Tax Cuts Do Not Increase Economic Activity
Wealthy Tax Cuts Only Increase Wealthy Incomes
[Asia Economy Reporter Naju-seok] A study has found that tax cuts for the wealthy do not contribute to economic growth or unemployment resolution. There is also a suggestion that concerns about the economic impact of tax cuts for the wealthy during the COVID-19 crisis are unnecessary.
On the 16th (local time), Dr. David Hope of the London School of Economics (LSE) and his research team published a paper titled "The Economic Effects of Tax Cuts for the Wealthy," based on an analysis of data from 18 OECD member countries from 1965 to 2015. This research report contains information on how tax cuts for the wealthy decided in advanced countries over the past 50 years have affected the economy.
The researchers stated, "Our study found that major tax cuts for the wealthy led to an increase in the income share of the top 1% of earners," adding, "The pre-tax income share of the top 1% increased by 0.8% after the tax cuts." They continued, "In terms of real Gross Domestic Product (GDP) or unemployment rates, we observed almost no economic effects from tax cuts for the wealthy," noting, "The impact was statistically indistinguishable from zero."
Tax cuts for the wealthy only increased the income of the wealthy and did not contribute to economic growth or unemployment resolution. This empirically confirms that the trickle-down effect, commonly discussed in economics, did not occur.
The researchers explained, "Our findings contradict supply-side economic theories that lowering taxes on the wealthy would stimulate labor supply among high-income earners, increase economic activity, and affect economic growth and unemployment," adding, "Empirical research suggesting that economic agents do not reduce their total labor supply due to income tax exemptions or sudden windfalls is more persuasive."
Dr. Hope stated, "Since the 1980s, tax cuts for the wealthy have only increased income inequality and have not produced any positive effects in terms of economic performance." Dr. Julian Limberg of King's College London, a co-author of the paper, introduced the study by saying, "This research is welcome news for countries that need to adjust public finances in response to COVID-19," and "It shows that there is no need to be overly concerned about increasing taxes on the wealthy."
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