Trickle down economics has failed: Stiglitz

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Trickle down economics isn't working, so the U.S. should reform the tax structure and offer more effective incentives to companies that create jobs for Americans, Nobel-winning economist Joseph Stiglitz said Wednesday.

"Right now we have some perverted incentives, the way our tax structure actually encourages people to invest abroad," the Columbia University professor said on CNBC's "Squawk Box." "If you're investing in America, yes you should get lower rates."

The key is not only providing incentives for companies that invest in the United States, but creating a big tax differential between those that contribute to U.S. growth and those that do not, Stiglitz said.

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The middle class is worse off after 35 years of the supply-side economics experiment, he said. The policy's mix of lower taxes at the top and less regulation has failed to deliver on its promise of giving middle- and low-income Americans a bigger piece of the pie as the entire economy grows, he said.

"The results are in. A third of a century, and what do we find? Growth was slower than before we tried that experiment, and the middle … it was right that they were going to get a smaller share, but the slice of their pie … has gone down."

In his new book, "The Great Divide: Unequal Societies and What We Can Do About Them," Stiglitz argues that capitalism does not have to produce inequality. Instead, he says inequality is the result of choices capitalist countries make.