Supply-side economics

Supply-side economics is the view that economic growth is best encouraged by improving incentives to work, save, invest and produce, mainly through lower marginal tax rates, reduced regulation and stable money. It contrasts with demand-side approaches that stress government spending and consumer demand as the drivers of growth.

The approach gained prominence in the 1970s through economists such as Arthur Laffer, Robert Mundell and Jude Wanniski, and became policy under Ronald Reagan, whose 1981 tax cuts cut the top rate sharply. Its best-known idea is the laffer curve. Later tax cuts, including those in 2001 and 2017, were also defended partly on supply-side grounds.

Supporters argue that lower rates on marginal income and capital raise growth and part of the lost revenue returns through a larger economy, a claim related to dynamic scoring. Critics, who coined the term "trickle-down economics" as a pejorative, say the growth effects have been smaller than promised, that tax cuts generally reduce revenue and raise deficits, and that benefits flow mainly to higher earners. Economists agree that incentives matter but differ on how large the effects are. See also keynesian economics.