Supply-side policies

Goals of supply-side policies

Goals of supply-side policies

Encourage market forces and increase competition

• Long-term growth by improving the economy's productive capacity

• Improving competition and efficiency

• Reducing labour costs and unemployment through labour market flexibility

• Reducing inflation to improve international competitiveness

• Increasing firms' incentives to invest in innovation through decreasing costs

Market-based supply-side policies to increase competition

• Deregulation (Allows market forces to operate freely. Firms are free to pursue least costly methods of production leading to efficiency, therefore decreased prices )

• Privatization (Incentivizes companies to improve efficiency, decrease costs and increase profit)

• Trade liberalization (If countries are able to access the factors of production from their cheapest source, then costs will decrease and greater efficiencies will arise.)

• Anti-monopoly regulation

Market-based supply-side policies for the labour market

Policies to create greater flexibility in the labour market:

• Reducing power of labour unions (Governments can create legislation or labour laws, or regulate minimum wage or working conditions to take away the need for industrial action)

• Reducing unemployment benefits

• Abolishing minimum wages (gives firms more flexibility to determine wages according to the productivity of labour and the supply and demand forces on the labour market.

  However, it may also enable exploitation of workers, especially low-skilled ones, and will increase the income gap in society .)

Incentive-related supply-side policies

Designed to encourage the supply side to increase, specifically labour and capital.

• Income tax cuts (Incentive to work more hours and for unemployed people to find work faster because the opportunity cost of being unemployed is higher)

• Corporate tax cuts

• Capital gains tax cuts (Benefits firms from improving properties they own, hence, firms have an incentive to constantly improve and update properties.)

Interventionist supply-side policies

Government increases the quantity or quality of the FoP to stimulate the supply-side of the economy.

• Education and training to improve human capital

• Improving quality, quantity and access to better healthcare

• Research and development (spending towards innovation and improvement of products and processes. In the longer term, innovation has the ability to improve efficiency.)

• Provision of infrastructure

• Industrial policies (targeted government interventions to drive the development of specific economic sectors. E.g. import substitution).