Supply-Side Economics

The origins of the supply-side economics school of thought can be traced to the 1970s as a conservative reaction against postwar Keynesian “demand-side” economic policies associated with changes in government spending levels to smooth out business cycles and to fund social spending programs. The central idea in this framework is that government can stimulate growth in aggregate supply through suitable tax policies, which in turn will result in an expansion of gross domestic product, accompanied by a decline in inflation.

The policies associated with supply-side economics are typically tax cuts. A prime example of such a policy is a cut in the top marginal income tax rates, which has the greatest effect on the highest income earners. According to the theory, a reduction in the marginal ...