Supply%20Side%20Economics

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Supply Side Economics

• Does this really work?

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The purpose of Income Taxes
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The Laffer Curve
Illustrates the amount of revenue Government
collects is a function of tax rate
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Supply-Side Economics

• Orthodox macro theory consists of demand-oriented
  theories
• they failed to explain stagflation (late 1970s)
• Supply-side economists believe the problems were
  high rates of taxation heavy regulation
• This had reduced the incentive to work, save and
  invest.
• What was needed was not a demand stimulus
• Incentives are needed to stimulate supply.

What is De-regulation?
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Supply-Side Policy

• Goal of a supply-side policy is to shift the
  aggregate supply curve to the right
• The supply-side toolbox has several tools
• Tax cuts to stimulate work effort, saving, and
  investment
• Deregulation to reduce production cost/stimulate
  investment.
• Expenditures on education training/research
  expands capacity to produce
• Immigration policies alter the size/skill of
  labor force

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Graphing Supply Side Economics
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Evaluating Supply-Side Economics

• Among the criticisms of supply-side economics is
  that it is unlikely a tax cut would substantially
  increase the supply of labor.
• When households receive a higher after-tax wage,
  they might have an incentive to work more, but
  they may also choose to work less.

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Supply-Side Policy Milestones
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End

• For more information see the Supply Side reading
  on my website

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Supply-Side Policy Milestones
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Supply-Side Policy Milestones
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Supply-Side Policy Milestones