Supply-Side Economics
The theory that economic growth is best achieved by reducing taxes on producers and cutting regulations.
What is Supply-Side Economics?
Supply-side economics is the macroeconomic theory that economic growth is primarily driven by policies that increase the productive capacity of the economy — the supply side — rather than stimulating consumer demand. Key supply-side prescriptions include reducing marginal tax rates (especially for high earners and corporations), cutting regulatory burdens on businesses, reducing government spending, and promoting free trade. Advocates argue that lower taxes increase incentives to work, save, invest, and start businesses, expanding the economy's productive capacity and ultimately generating more tax revenue even at lower rates (see the Laffer Curve). Critics argue that benefits concentrate at the top with limited trickle-down to lower-income households.
Example
The Tax Cuts and Jobs Act of 2017 embodied supply-side principles, cutting the U.S. corporate tax rate from 35% to 21% with the stated goal of boosting business investment. Real business fixed investment grew about 9% in 2018, and GDP growth reached 2.9% — though economists debate how much was attributable to tax cuts versus other cyclical factors and the prior low base.
Source: Congressional Budget Office — The Budget and Economic Outlook