Notes for a critique of trickle down theory

Abstract

In this paper we revisit the marginal proportional substitution rate (TMPS) introduced by Nanak Kakwani in 1993, we propose a new formalization that allows us to specify its scope (and limitations), and to highlight its value as a reasonably simple and practical device to guide the overall design of those public policies that aim to reduce levels of income poverty. Likewise, we argue that the different analytical strategies that seek to explain the changes in the poverty rate from the effect-income/effect-distribution duality (standard theory) end up being more complementary than critical to the “trickle down theory”. This is because these strategies tend to identify economic growth with that of household income. We will argue here that this identity is neither conceptually nor empirically valid and we propose, consequently, a new strategy to decompose changes in the incidence of poverty based on three main components (growth effects, participation and distribution).