| Abstract: | A fundamental tenet of supply-side economics is the ‘trickle-down’ effect, according to which a redistribution of income shares to those with higher incomes is supposed to result in sufficient income growth to make everyone better off. Apart from the inherent improbability of such an outcome, it is possible to argue that such a redistribution causes scarce resources to be transferred to luxury goods production, reducing the supply of the wage goods commodities in whose production those resources are used. The reduced availability of such commodities can give rise to an increase in absolute poverty (defined as the inability to afford basic necessities). This increase in absolute poverty forms a ‘threshold’ which must be more than balanced by an increase in real income due to the supply-side acceleration of economic growth before the ‘trickle-down’ effect may be said to have been realized. Some evidence from the UK is provided, together with a note on how this poverty mechanism affects the calculation of the retail Prices index. |
