Supply-side policies raise the economy's productive capacity by improving the quantity and quality of resources and incentives.
Supply-side policy aims to raise how much the economy is able to produce. It works on the amount and quality of resources, and on the rewards for work and risk. It does not work through total demand.
Education and training give workers more skills, so each worker makes more. Spending on roads, ports and fast internet cuts firms' costs, so they can make more for less.
Labour market reforms make it easier for firms to hire and for workers to change jobs. Lower income tax and company tax let people keep more of what they earn, so they have more reason to work and invest. Changing benefits so that work pays more than not working also helps.
Deregulation removes rules that are not needed. Costs fall and new firms can start more easily. Privatisation sells state firms to private owners, who have a profit reason to cut costs.
- Supply-side policy
- Policies that increase productive capacity.
- Measures
- Education and training, infrastructure, labour market reforms, lower direct taxes, deregulation, incentives, privatisation.
Worked example: Supply-side policy in Singapore
Singapore uses many supply-side measures.
- Education and training: SkillsFuture credits help adults learn new skills.
- Infrastructure: the new Tuas mega port and rail lines raise productivity.
- Incentives to invest: a competitive company tax rate attracts foreign firms.
- Help for firms to adopt technology and automate, lifting output per worker.
Watch out for this
Supply-side policy means increasing the supply of money.
Supply-side policy is about the economy's ability to produce: workers' skills, infrastructure and incentives. Changing the money supply is monetary policy.
Check your understanding
Which is a supply-side policy?
- Subsidising training courses for workers
- Cutting interest rates
- Raising government spending on cash handouts