MARKET-BASED SUPPLY-SIDE POLICIES

Supply-side policies: Government strategies aimed at increasing the productive capacity of the economy.

Market-based supply-side policies: Policies that increase incentives for firms and workers by reducing government intervention in markets.

Lower income taxes: Increase incentives to work by raising disposable income

potentially increasing labour supply.

Lower corporate taxes: Increase after-tax profits

encouraging firms to invest and expand productive capacity.

Deregulation: Removal or reduction of government rules to lower costs for firms and improve efficiency.

Privatization: Transfer of ownership of firms or assets from the public sector to the private sector.

Why privatization may improve efficiency: Private firms face profit incentives and competition

encouraging cost reduction and productivity improvements.

Trade liberalisation: Removal of barriers to trade to increase competition and efficiency.

Advantage of market-based supply-side policies: Improve incentives and efficiency with limited direct government spending.

Disadvantage of market-based supply-side policies: Can increase income inequality and reduce government tax revenue in the short run.