Apr 02 2008

Supply - side economists: “lower taxes, more growth, more tax revenue!”

14 Responses to “Supply - side economists: “lower taxes, more growth, more tax revenue!””

1. # James Tsaoon 04 Apr 2008 at 9:08 pm

   In many ways… the idea of supply-side economics makes sense. Though how does the government make sure that a sufficient amount of this increase in disposable income goes to investment? And how long does it take for wealth to ‘trickle down?’ There is no right or wrong between supply-side economics and demand-side economics, it is a matter of a right balance between the two. If Republicans become too extreme with supply-side economics and do not handle the policies well, it can widen the gap between rich and poor.

2. # optional.xuon 06 Apr 2008 at 8:24 pm

   Of course, if investment were always to increase when tax cuts happened and GDP kept going up and up then supply-side would be great! But I feel skeptical that a decrease in taxes always leads to a three-fold in GDP. So why don’t we just have lower taxes every year if the revenue always come back eventually to their original amount? Not reasonable one would say but I feel like it works to some extent but it isn’t guaranteed to happen.

   One of those ideal things that don’t happen.

3. # Jessica Ngon 07 Apr 2008 at 10:28 am

   In a way, this theory of supply side economics by cutting taxes to promote investment makes sense. But there is a possibility that in an even longer term, the effects will be offset by the increase in aggregate demand. Tax cuts obviously produce increases in aggregate demand as investment increases. However, this may lead to huge inflation, higher than the “healthy” growth rate. Restrictive monetary and fiscal policies will be implemented in order to combat the inflation. This leads to an increase in interest rate and investment will decline, again reducing tax revenue.
   But yet again, this is also theoretical. These theories kind of just goes around in a circle; it’s hard, and I’d say it’s practically impossible, to determine which one is more appropriate to an economy.

4. # Angel Liuon 07 Apr 2008 at 8:39 pm

   I thought the supply-side economic view is to shift aggregate supply rightward so there’s increase in GDP and little inflation, but tax cuts aiming to increase investment is actually shifting aggregate demand. Then after increase in capital stock will aggregate supply shift to the right. Doesn’t that take a long time and the result unpredictable?

5. # Chan Min Parkon 07 Apr 2008 at 9:47 pm

   As we said in class, tax cuts don’t necessarily lead to more investment and more growth. It may stimulate investment because people have more disposable income. However some people might just work less because they can make the same amount of money since there are tax cuts. Then, investment won’t grow as much as anticipated and the economic growth might not be as great.

6. # kevinyehon 07 Apr 2008 at 11:06 pm

   In a certain way tax cuts do benefit society from the supply side, but really how much difference is that going to make as opposed to, say, government spending in demandside economics? It’s really a matter of politics, then, where the Republicans are just trying to keep the government out of the economy.

7. # kxc.024on 08 Apr 2008 at 5:58 pm

   I’m more of a democrat so of course my views will also be kind of biased. But I personally think that these tax cuts don’t benefit as much. While it is true that by cutting taxes, investment and all that will increase, leading to an outward shift of AS, wouldn’t it be easier to shift AD outwards? The mathematics do show that there is a larger increase in real GDP when government spending increases, as opposed to tax rebates…

8. # Helenon 08 Apr 2008 at 9:53 pm

   Republicans advocate minimum government intervention in the economy and thus lower taxes, all for the ultimate purpose of encouraging firms to invest. It looks as if supply-side economics cannot stand alone by itself because a weak AD, caused by low investments, cannot stimulate long run economic growth because as we have learned recently, an increase in AS has to be accompanied by an increase in AD for actual long run economic growth to occur.

   Republicans and Democrats alike are giving all these economic rationale for why they support lower (or higher taxes), less (or more) government spending, but I think all of this is just a facade over the fact that the politicians are using the economy as another tool to achieve their political ends.

9. # Kristie Chungon 08 Apr 2008 at 11:30 pm

   Well both demand-side economics and supply-side economics can be used, and I don’t really think there’s really one right way to approach the problems in the economy. Like people have already said, I think the choice of which to implement is influenced by politics.

10. # MichaelChowon 09 Apr 2008 at 7:32 pm

    The quote “Investment is the main engine of economic growth, price level stability, and low unemployment” is reasonable in many ways. And I see a good argument on the overall aspect of the incentive for firms to invest. With the reduction in taxes, the incentives will without a doubt increase. However the argument made in relation to the Laffer Curve shows us that there is a relationship between tax cuts and tax revenues which then “stuns” investment.

11. # Jeewonon 09 Apr 2008 at 8:45 pm

    It makes sense that lower tax rates will provide incentives for firms to invest more, but is it really guaranteed? The supply-side argument that a “tax cut of one percent of GDP increases real output by approximately three percent over the next three years” is probably based on the assumption that the increased disposable income from lower taxes will be spent on investment, which will compensate for the lower tax revenues. Also, like Jessica said, increasing aggregate demand could cause inflation.

12. # kevinmaon 12 Apr 2008 at 5:50 pm

    i agree that this theory makes sense that if we lower tax more people should be investing. However, this doesn’t always happen because investors also look at other factors in that country. Also like some previous people said, increasing aggregate demand could also cause inflation which could cause less people to invest.

13. # serenatuon 13 Apr 2008 at 4:02 pm

    Tax cuts do benefit the society, with a tax cut, firms have more incentive to invest and thus causing the supply curve to shift outward to the right. I think demand-side economics and supply-side economics will both be useful, however to determine which polity to use really depends on the politics and the government.

14. # Mondon 13 Apr 2008 at 11:58 pm

    I agree with what is being said, both of them work. There is no right or wrong way, as long as it achieves the goal, then who cares which one you choose?

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