supply-side economics

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supply-side economics,

economic theory that concentrates on influencing the supply of labor and goods as a path to economic health, rather than approaching the issue through such macroeconomic concerns as gross national product. In the United States during the 1980s, supply-side economics was associated with conservative proponents of the free-market system. Such measures as tax cuts and benefit cuts to the unemployed are basic supply-side tactics, with the intention of increasing the incentive to work and produce goods and services. The theory holds that high marginal tax rates and government regulation discourage private investment in areas that fuel economic expansion, and that more capital in the hands of the private sector will "trickle down" to the rest of the population. The theory gained popularity during the late 1970s, with a tax revolt in California and economic hardship during the CarterCarter, Jimmy
(James Earl Carter, Jr.), 1924–, 39th President of the United States (1977–81), b. Plains, Ga, grad. Annapolis, 1946.

Carter served in the navy, where he worked with Admiral Hyman G. Rickover in developing the nuclear submarine program.
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 administration (1977–81). Arthur Laffer and his "Laffer curve" doctrine became the heart of the economic programs of Ronald ReaganReagan, Ronald Wilson
, 1911–2004, 40th president of the United States (1981–89), b. Tampico, Ill. In 1932, after graduation from Eureka College, he became a radio announcer and sportscaster.
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's presidency, during which tax rates were cut substantially. Although supply siders maintain that the tax cuts of the 1980s were responsible for the decade's economic growth, critics argue that such policies caused massive federal deficits, penalized the poor and middle class, and induced excessive speculation that severely damaged America's economy. The subsequent tax increases under Presidents George H. W. Bush and Bill Clinton and the concurrent corporate investment, economic growth, and drop in unemployment during the 1990s further undercut supply-side suppositions.


See V. Canto, Foundations of Supply-Side Economics (1983); R. L. Bartley, The Seven Fat Years (1992).

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References in periodicals archive ?
Second, how effective have the Coalition government's supply-side policies been in improving likely future growth performance?
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Supply-side policies focus on easing constraints on how businesses operate and people make choices, in contrast to demand-side policies which stimulate demand and consumption.
It said that supply-side policies which promote small- and medium-sized enterprises and services industries will increase the relative importance of production that caters to domestic demand.
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He said: ``As long as they carry on with the two sound supply-side policies I mentioned I think then there is no case for a poverty trap.
This leads one to lean towards the hypothesis that developing countries can attain considerable success in boosting their agricultural exports through pursuing front-end and pro-active supply-side policies. These findings are supported by Athukorala (1991); Kravis (1970); Diaz-Alejandro (1975), and Bhagwati and Srinivasan (1979).
In adapting the working-age population to the requirements of the labor market, the United States has chiefly relied on supply-side policies, such as training, education, the earned income tax credit, and job development services at the local level.