Supply-side Policies

What are supply side policies?

A set of economic measures to improve the long-run productive capacity and efficiency of an economy

What are the main aims of supply-side policies

• Improve incentives to work and invest in human capital

• Increase labour/capital productivity

• Increase occupation and geographical mobility of labour

• Promote contestability and stimulate innovation

• Encourage start ups of businesses with export potential

• Improve sustainable growth of real GDP

What are the main supply side weaknesses

• Business investment falling

• Economic inactivity

• Low labour mobility

• Ageing infrastructure

• Regional imbalances

• Productivity gap

Define trend growth

The long term non-inflationary increase in GDP and average sustainable rate of economic growth

What are supply side policies to improve incentives

• Tax cuts - incentivise work, investment and entrepreneurial activity

• Deregulation- easier for firms to operate and expand

• Trade liberalisation - stimulate trade and exports

  • Intellectual Property Protection

What are supply side policies to improve competition

• Competition

• Deregulation

• Market access

• Open data and interoperability standards - enabling different companies to build products or services that work together promoting innovation

What are supply side policies to reform labour markets

• Labour market deregulation

• Reducing trade union power

• Immigration reforms

• Gender and diversity inclusion

What are interventionist supple side policies

Government driven supply side policies:

• State investment in public service (healthcare/education) and infrastructure (transport)

• A commitment to minimum wage to improve work incentives

• Higher taxes on wealthy to fund public and merit goods

• Investment in underperforming areas

• Selective import controls to allow domestic industries to expand

• Nationalisation of and tougher regulation of key industries

What are criticisms of interventionist supply side policies

• Bureaucracy and ineffeciency

• Crowding out private sector

• Reduced jncentives

• Ineffective redistribution

• Costly and inefficient state enterprises

What are market based supply side policies

Reduce the role of the government to boost LRAS

Why do supply side policies make LRAS expand

• Increase in quantity of factors of production

• Increase in quality of factors of production

• Increase in productive efficiency

Give examples of market based supply side policies and why they work

Tax reforms: Lower income tax, lower corporation tax - incentive to enter workforce

Labour market reforms: Reduce benefits, reduce minimum wage, reduce trade union power - reduce business costs and incentivises work

Competition policy: Privatisation, Deregulation, trade liberalisation

Evaluate supply side policies

• No guarantee of success

• High cost

• Time lags

• Output gap - in recession SSP not effective

Describe microeconomic supply side policies

• Promote ompetition

• Subsidise businesses

• Deregulation

• Industry regulations

• Providing work visas

Describe macroeconomic supply side policies

• Direct tax chanfes

• Changing government spending

• Trade agreements

• Major infrastructure projects