Supply-side Policies

Supply-side policies

• Aim to expand the productive potential (LRAS) of an economy/increase trend rate of growth

• Are about the government creating the right conditions to allow market forces to create growth

• Involve making structural changes to the economy to allow its ‘individual parts’ to work more efficiently and productively

Free market supply-side policies

Aim to increase efficiency by removing things which interfere with the free market. These include:

• Tax cuts

• Privatisation

• Deregulation

• Policies to increase labour market flexibility

Interventionist supply-side policies

Usually aimed at correcting market failure. These include:

• Government spending on education

• Subsidies for R&D

• Funding for infrastructure improvements

• Industrial policies

Advantages of supply-side policies

• Can increase the efficiency of various markets

• Can reduce budget deficits

• Involve fewer trade-offs between objectives

• Makes an economy less dependent on imports

Disadvantages of supply-side policies

• Time lags

• Unintended consequences

• Low popularity