Lecture 16
SUPPLY-SIDE POLICIES

1. Objective of supply-side policies

• Raise GDP by shifting the SS curve to the right

2. Examples

• Reduce taxes on capital gains:
  Encourages private sector to invest more

• Reduce certain taxes on firms:
  Investment tax credits
  Credits for R&D

• Reduce personal income tax rates:
  People may work longer, harder

3. Criticism of supply-side economics

• Effects of policies are small

• Effects on aggregate demand may lead to inflation

• Effects of tax credits are not felt in the short run

• Leads to an inequitable distribution of income:
  Who gains the most?

• Leads to bigger budget deficits:
  So what?