Market-based supply-side policies

Policies to encourage competition

Competition leads to increased efficiency and eliminates market failure. Government can adopt various strategies to reduce its control over market and encourage competition. This includes

·         Deregulation: The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry.

·         Privatization: The transfer of ownership of property or businesses from a government to a privately owned entity. It leads to greater efficiency as it is thought to come from the greater importance private owners tend to place on profit maximization as compared to government, which tends to be less concerned about profits.

·         Trade liberalization: This involves the removal or reduction of restrictions or barriers on the free exchange of goods between nations. Trade liberalization ultimately lowers consumer costs, increases efficiency and fosters economic growth.

·         Anti-monopoly regulations can avoid monopolies being formed and thus stimulate competition among firms, leading to greater efficiency.

Labour market reforms

These include reducing the power of labour unions, reducing unemployment benefits and abolishing minimum wages in order to make the labour market more flexible (more responsive to supply and demand).

Incentive-related policies

Personal income tax cuts are used to increase the incentive to work, and cuts in business tax and capital gains tax are used to increase the incentive to invest.