A study by David Hope and Julian Limberg of the London School of Economics and King’s College London examined the economic effects of major tax cuts for the wealthy across five decades in 18 wealthy nations. Their conclusion: tax cuts for the rich increased wealth inequality without meaningfully affecting unemployment or economic growth.
The research became the most downloaded paper in the history of LSE Research Online, attracting approximately 150,000 downloads and extensive global media coverage. The finding directly challenged the theory of “trickle-down economics,” which proponents like Margaret Thatcher, Ronald Reagan, and Donald Trump had argued would boost economic activity by freeing up money for top earners to hire workers, pay better wages, and invest more.
According to Dr. Hope, “In 2017, when Donald Trump was introducing the Tax Cuts and Jobs Act, he claimed to the American people that this would be rocket fuel for the US economy. We don’t find any evidence in our study across 18 advanced economies over 50 years of that being true.”
The researchers explained their findings through the lens of rent-seeking behavior. As economist Thomas Piketty has argued, when taxes on the wealthy are cut, top earners and executives “bargain more aggressively for their own compensation at the direct expense of workers lower down the income distribution,” rather than investing in job creation or wage increases.
The research gained particular attention following former UK Prime Minister Liz Truss and Treasurer Kwasi Kwarteng’s 2022 announcement of unfunded tax cuts for top earners, which sparked significant market turmoil and political backlash. The study was widely cited by economists and politicians in response to that proposal.
Dr. Limberg noted that the paper generated polarized reactions, with critics either dismissing the findings entirely or viewing them as politically motivated, rather than engaging with the data-driven analysis. The researchers subsequently investigated public support for tax cuts on the wealthy in the United States. According to Dr. Hope, “The average citizen seems to be fairly poorly informed that taxes on the rich have fallen really dramatically in the past 40 years. If you give them that information, it makes them less likely to support tax cuts for the rich,” with particularly strong effects observed among Republican voters.
Key facts
- A study analyzing tax cuts across 18 wealthy nations over 50 years found no meaningful effect on unemployment or economic growth
- The research became the most downloaded paper in LSE Research Online history with approximately 150,000 downloads
- The wealthy benefited from tax cuts through increased income, but this did not translate to broader economic gains
- Tax cuts for the wealthy are associated with increased rent-seeking behavior by executives rather than job creation or investment
- When informed about the decline in taxes on the rich over 40 years, US citizens became less likely to support further tax cuts