Supply-Side Policies

Aims of supply-side policies Shift LRAS to the right Expanding the economy (output) Non-inflationary Mainly fiscal policies and micro Labour market measures Product market measures

Labour market measures Lower (marginal) rates of income tax Raise tax thresholds Raise personal allowances –These increase the incentive to work

Laffer curve Arthur Laffer – the ‘Father of supply-side economics’ High tax rates are a disincentive to work –Causes national income to fall, and –Tax revenue falls

Reducing state benefits –Or make them more difficult to claim ‘New deal’, ‘Welfare to work’ –Increase participation through WFTC (working families tax credits) Minimum wage Education and training –EMA (educational maintenance allowance?) –Raise compulsory school leaving age Trade Union reforms –Reduces labour costs –Increases international competitiveness –Increases labour flexibility

Product Market Measures Designed to increase competition and efficiency Privatisation Deregulation Tougher competition policy (reduce market power) Encourage entrepreneurship –Tax concessions –Regional policy assistance –Loan guarantee schemes

What will successful supply-side policies look like? ADASPPF