5.4.1—Supply-side policy

Supply-side policies seek to increase potential output, productivity or labour-market flexibility rather than only raise current spending.

They can be market-oriented—such as reducing barriers to work or enterprise—or interventionist—such as education, infrastructure and research support. Benefits usually take time and may be unevenly distributed.

Better vocational training can raise worker productivity and shift LRAS right; a weaker regulatory barrier may lower firms’ costs but could also reduce worker protection if poorly designed.

A policy called “supply-side” is not automatically expansionary in the short run, and deregulation is not the only supply-side option.