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 ?
Three of these, namely adverse changes in supply-side policy, an absence of great inventions with economic impact, and a loss of economic dynamism in the private sector, could singly or in combination imply that slow economic growth has indeed become the "new normal".
Third, supply-side policy in most European countries leaves a lot to be desired, but it has not significantly deteriorated in recent years, although populism is a threat.
The long-run growth projections reported in table 6 are based on a growth model which allows for TFP growth in the leader (United States) and a component based on scope for catch-up by other countries and how well this scope will be exploited which depends on supply-side policy settings and institutions.
Despite attaining laughing-stock status in Punch-and-Judy politics, 'post-neoclassical endogenous growth theory' offers important insights into the way supply-side policy can be designed to promote productivity growth.
After the election of the Thatcher government, the stance of supply-side policy changed markedly.
Given these ambitions to improve key areas of supply-side policy, what has happened in key areas?
Three areas of policy deserve some critical scrutiny, namely, the approach to fiscal consolidation, the re-thinking of industrial policy in the context of re-balancing the economy, and the institutional framework within which supply-side policy is designed and monitored.
From the perspective of supply-side policy towards growth, this raises the key issue of the composition of the fiscal adjustment, given its size, with regard to the balance between expenditure and tax, capital and current expenditure, direct and indirect taxes etc.
The distinctive feature of supply-side policy under the Coalition compared with the recent past is the pursuit of an 'industrial strategy' which aims to promote growth through boosting eleven selected sectors and to stimulate the advance and commercialisation of eight selected technologies with the underlying objective of re-balancing the economy (Rhodes, 2014).
Furthermore, in the supply-side policy simulation, the authors assume that wholesale prices will rise at a faster rate for wheat, rice, and maize.
This was a far cry from the so-called Golden Age of the early postwar years and for most countries was a period of falling behind rather than catching up with the United States even though it appeared that, on the whole, supply-side policy had improved.
(16) This suggests that optimism about supply-side policy based on early responses to the crisis should not be overdone.