supply-side economics

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Supply-side economics

A theory of economics that reductions in tax rates will stimulate investment and in turn will benefit the entire society.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Supply-Side Economics

A macroeconomic theory that a government can best promote growth by providing incentives for persons to produce goods and services. The primary way a supply-side oriented government does this is by maintaining low tax rates so that investors and entrepreneurs may use their money toward production. Maintaining low tax rates on the wealthy is one of the most important and controversial aspects of supply-side economics; the theory states that well off persons have the capital available to produce goods and services and thereby create jobs and grow the economy. Critics contend that this does not happen in reality, and that the wealthy are more likely to keep, rather than invest, their money. In the United States, supply-side economics was crucial to the economic policy in the Ronald Reagan administration. See also: Keynesian economics, Monetarism, Trickle-down economics.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

supply-side economics

The branch of economics that concentrates on measures to increase output of goods and services in the long run. The basis of supply-side economics is that marginal tax rates should be reduced to provide incentives to supply additional labor and capital, and thereby promote long-term growth.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

supply-side economics

the branch of economic analysis concerned with the productive capability of an economy (POTENTIAL GROSS NATIONAL PRODUCT) and with policies that attempt to expand the stock of factors of production and to improve the flexibility of factor markets so as to generate the largest possible output for a given level of AGGREGATE DEMAND. Supply-side economists have examined institutional rigidities in factor markets and the effect of higher factor prices in ‘pricing people out of jobs’. This has led them to condemn the activities of trade unions in labour markets on the grounds that trade unions impose RESTRICTIVE LABOUR PRACTICES (such as overmanning and demarcation boundaries) and push WAGE RATES up to levels that exceed the MARGINAL REVENUE PRODUCTIVITY of the workers concerned, thereby causing UNEMPLOYMENT and COST-PUSH INFLATION. Such ideas have also led supply-side economists to condemn certain SOCIAL-SECURITY BENEFITS systems and PROGRESSIVE TAXATION systems for creating a POVERTY TRAP that acts as a disincentive for the unemployed to take low-paid jobs.

More broadly, supply-side economics has been concerned with ways in which the AGGREGATE SUPPLY SCHEDULE can be shifted outwards so as to enable more output to be produced in response to growing aggregate demand without raising the PRICE LEVEL.

Governments may adopt supply-side policies to increase the stock of factors of production and to improve the efficiency of resource use by promoting the flexibility of markets in responding to demand changes. These policies include reductions in taxation and other disincentives to work to increase labour participation rates; financial incentives to increase capital investment in plant and equipment and promote similar investments in process and product invention and innovation; education and training policies to improve the supply of required skills; more competition in the financial sector to improve the efficiency of capital markets; privatization and reduced government control of industry (deregulation) to encourage industrial efficiency; regional policy assistance, private rented accommodation and portable pensions to encourage labour mobility; lower tax rates and changed social security benefits to provide incentives to work harder and take risks; curbs on the power of trade unions to improve the flexibility of labour markets, wider share ownership and assistance to the self-employed to promote enterprise culture. These measures can help to increase economic growth rates and reduce unemployment. See also NEGATIVE INCOME TAX, PROFIT-RELATED PAY, LAFFER CURVE.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
Thus far, this review of supply-side policies since 2010 suggests a strong element of continuity from the previous government in terms both of strengths (competition and regulation) and weaknesses (innovation and infrastructure).
These results suggest that the current supply-side policies aimed at educating sex workers about risk and empowering them is not sufficient to significantly increase condom use.
AS THE JAPANESE ECONOMY implodes, the question becomes not just how Tokyo's "best and brightest" managed to get it so wrong, but why they failed to realize that supply-side policies in a demand-starved economy would take Japan so far in the wrong direction.
However, supply-side policies are equally important to China's unemployment problem, because the number of unemployed workers equates excess labor supply, which depends on both labor demand and labor supply.
As such, governments should be allowed the freedom to pursue demand- and supply-side policies that achieve such objectives.
Similarly, supply-side policies, oriented to the creation of physical and human capital--to make sure that the marginal productivity of labor increases in such a way that equality is not detrimental to efficiency considerations--has been systematically used by the Left.
We saw it in the flood of white Democrats into the Republican party in the South, and in the tax-cut wave that began with California's Proposition 13 in 1978 and became the supply-side policies of 1981.
They will consider not only macropolicy indicators such as inflation, deficits, and debt but also supply-side policies, labor market regulation, and the composition of government spending.
Micro demand-side policies and aggregate demand policies are distinguished from supply-side policies, which increase the quantity or quality of the labor supply of less-skilled workers.
"That is why unprecedented demand-side policies are being tried in Japan." "In particular, the government needs to quickly introduce policies to mitigate the negative impact of corporate restructuring on employment, while also aggressively pursuing supply-side policies to accelerate that restructuring," he wrote.
For a government such as PASOK, one might expect rising deficits associated with its supply-side policies which implied increases in government capital expenditure.
The key to sustainable growth and a return to full employment is to implement genuine supply-side policies - by which I mean policies which would actually increase the supply potential of the economy by creating new industrial capacity, rather than the labour market policies which are so often referred to as "supply side" simply because they disregard the importance of demand effects - alongside macroeconomic measures to ensure a continuous expansion of profitable production opportunities.