Supply-side Policies

Overview

Supply-side Policies refer to economic policies that improve an economy’s capacity to produce.
These policies aim to make the market more efficient and encourage greater competition, productivity, and innovation.

Education and Training: Enhancements in education and training can improve labour productivity, mobility and reduce structural unemployment.
Infrastructure Investment: Investment in infrastructure enhances the quality of roads, ports, and telecommunications, which can boost productivity and economic growth.
Tax Policies: Reducing tax rates can stimulate investment and incentivise businesses to increase production.
Deregulation: Removing or reducing government regulations can promote competition and efficiency.
Trade Liberalisation: Reducing trade barriers can increase competition and access to global markets.

Worker Productivity: The productivity of workers is a critical indicator to assess the success of these policies.
Unemployment Rates: A decrease in unemployment rates can signify successful policies.
Rate of Investment: It indicates the level of confidence businesses have in making capital investments.
Economic Growth Rates: Strong and sustainable growth rates are a positive indicator of the effectiveness of supply-side policies.

Encourages Increased Competition: More competition can lead to better quality of goods and services.
Higher Potential Output: By improving an economy’s productive capacity, these policies can result in higher potential GDP.
Reduced Inflationary Pressures: By increasing the efficiency of production, they can reduce costs and thus diminishing inflationary pressures.

Time Lag: The beneficial effects of many supply-side policies are experienced only in the long-term.
Inequality: Deregulation and tax cuts can lead to greater income inequality as benefits are more likely to accrue to wealthier individuals or businesses.
Negative Externalities, such as environmental damage, may result from deregulation.

Through improvements to productivity and efficiency, they boost long-term economic growth.
They enhance competitiveness of businesses on the global stage.
These policies can complement demand management policies (like monetary and fiscal policy) to manage the overall health of the national economy.