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Supply-Side Policies and Government Budget

Question

Discuss the impact of supply-side policy measures on government expenditure and on government revenue.

Category:

Public Finance and Government Intervention

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Preview Answer

I. 🍃Introduction
- Brief explanation of the topic

II. Increase in government expenditure and decrease in tax revenue
- Explanation of policies such as subsidies being expensive
- Discussion of how borrowing for subsidies increases government spending on interest payments
- Explanation of how gains from supply side policies take a long time to materialize
- Discussion of how cuts in income tax and corporation tax may decrease tax revenue in the short run
- Explanation of how privatisation in the long run may reduce government revenue

III. Decrease in government expenditure and increase in tax revenue
- Explanation of how supply side policies increase the productive capacity of the economy
- Discussion of how income tax and corporation tax receipts may increase in the long run
- Explanation of how spending on education and training may increase employment, reducing spending on welfare benefits and increasing income tax revenue
- Discussion of how deregulation may increase tax revenue in the long run if efficiency increases
- Explanation of how privatisation in the short run may increase government revenue from the sale of shares

IV. 👉Conclusion
- Summary of the main points
- Final thoughts on the topic

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