Welcome to the Investors Trading Academy talking glossary of financial terms and events. Our word of the day is “Supply side Economics” Supply side economics is the branch of economics that concentrates on measures to increase output of goods and services in the long run. The basis is that marginal tax rates should be reduced to provide incentives to supply additional labor and capital, and thereby promote long term growth. Supply-side economics proposes that tax decreases may lead to economic growth. Historical data, however, shows no significant correlation between lower top marginal tax rates and GDP growth rate. The term “supply-side economics” is used in two different but related ways. Some use the term to refer to the fact that production (supply) underlies consumption and living standards. In the long run, our income levels reflect our ability to produce goods and services that people value. Higher income levels and living standards cannot be achieved without expansion in output. Virtually all economists accept this proposition and therefore are “supply siders.” “Supply-side economics” is also used to describe how changes in marginal tax rates influence economic activity. Supply-side economists believe that high marginal tax rates strongly discourage income, output, and the efficiency of resource use. In recent years, this latter use of the term has become the more common of the two. By Barry Norman, Investors Trading Academy - ITA