Supply-Side Economics

While Keynesian economics focuses on demand, supply-side economics focuses on production. It argues that high tax rates and heavy regulation discourage work, investment and innovation, limiting growth.

Supply-side policies typically include cutting marginal income and corporate tax rates, reducing regulation, encouraging competition and making labour markets more flexible.

The approach became prominent in the United States in the 1980s under President Ronald Reagan, and similar ideas influenced policy in the United Kingdom under Margaret Thatcher. A well-known supply-side idea is the Laffer curve, associated with economist Arthur Laffer, which suggests that cutting very high tax rates could increase tax revenue by encouraging more economic activity.

For example, supply-side economists might argue that lowering the corporate tax rate would encourage businesses to invest more, raising productivity and wages over time.

Critics argue that tax cuts often benefit higher earners most and usually reduce revenue, increasing budget deficits. Most economists agree supply-side factors matter for long-term growth, but disagree about the size of the effects.