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?
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