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 ?
Again, on the face, the 1930s would seem to confirm supply-side theory.
Bartley doesn't even really bother to refute noted Keynesian economist Robert Eisner, whom he cites as having made a persuasive case that the Reagan deficits constituted Keynes' old-fashioned demand-side stimulus cloaked in supply-side rhetoric.
Noelan Arbis, economist at British banking giant HSBC, said the upside risks to inflation and the fact that it is largely being driven from the supply-side, such as higher food and oil prices, emphasize the need for a non-monetary response.
If the Fed's current estimates of potential growth are a hard limit, then we should see more evidence the economy is hitting supply-side constraints this year.
Then came supply-side under President Reagan, who cut the top marginal income tax rate from north of 70 percent to 38.5 percent in 1981.
So what happened? ( Business investment , clearly a key metric in evaluating the success of the supply-side tax cut argument, was virtually flat as a share of gross domestic product after the 1981 cuts.
During the 1980s, the economics establishment was too busy ridiculing supply-side economics as "voodoo economics," "trickle-down economics," "tax cuts for the rich," and for allegedly claiming that tax cuts pay for themselves, to notice what I pointed out at the time: the dreaded Phillips Curve with its worsening trade-offs had disappeared.
Moving into 2018, price gains in oil will be limited by strong supply-side additions from the completion of the current projects pipeline before a dearth of new projects and the continuation of healthy demand tightens the market from 2019, says BMI.
"[I]s bad data flowing to the president really a supply-side thing?
The current GDP estimations consolidate supply-side statistics such as production and demand-side statistics from surveys of entities engaging in consumption and investments.
Manners-Bell, who is associated with a supplier of market solutions to the global logistics industry, surveys the field of global logistics from both the demand and supply sides, addressing the history and development of key segments; demand-side trends and political, economic, social, technological, environmental, and legislative forces creating change in the industry; internal supply-side dynamics and microeconomics that help facilitate change; and technological developments influencing and disrupting the future of the supply chain and logistics industry.
Prof Patrick Minford, of Cardiff Business School, said the study, conducted by PwC, ignored the benefits of supply-side reform that would follow departure.