GoKawiilWhen then UK Prime Minister Liz Truss and Treasurer Kwasi Kwarteng sparked economic turmoil by announcing unfunded tax cuts for top earners to boost economic growth, it created one of the most extraordinary political crises in UK history.
Their "mini budget" spooked the markets and was widely condemned for appearing to rely on the discredited theory of "trickle-down economics". But it’s an idea that has persisted: the last 50 years has seen a dramatic decline in taxes on the rich across advanced democracies. Margaret Thatcher, Ronald Reagan and Donald Trump were all elected on promises of major tax cuts for top earners, arguing that freeing up money for the wealthy allows them to hire more workers, pay better wages and invest more.
In research first published as a working paper in 2020, David Hope and Julian Limberg, of LSE’s International Inequalities Institute and King’s College London, analysed the economic effects of major tax cuts for the rich across five decades in 18 wealthy nations.
The rich get richer, while unemployment and economic growth are unaffected
If you cut taxes on the rich...they then bargain more aggressively for their own compensation at the direct expense of workers lower down the income distribution.
Their conclusion: the rich got richer and there was no meaningful effect on unemployment or economic growth. It really struck a nerve: after being press released by LSE, it attracted extensive global media coverage, went viral on social media, and was cited by high-profile economists and politicians. As a result, it became the most downloaded paper in the history of LSE Research Online - the database of all research produced by LSE academics.
Dr Hope explained: "So, it was, I would say, not the typical response we get when we publish an academic paper. It has been downloaded about 150,000 times. To put that in some context, my previous working paper in that series was downloaded, I think, a staggering 200 times. And so this was really quite different from the norm in that respect.
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"For someone who has never had a Twitter account, to go viral on Twitter was quite an experience. And we also had many of our colleagues sending us memes about the paper during the days after its release. We took it upon ourselves to put those at the start of a number of academic presentations we did on the paper after that, because you don't get this opportunity too often."
Dr Limberg added: "It was actually quite interesting because we got more or less two types of reactions. One was, ‘This cannot be true, and we don't believe this.’ And also, ‘You are socialists and that's it.’
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