Fiscal Policy - Impact on Aggregate Supply and Economic Growth
- Levels: AS, A Level
- Exam boards: AQA, Edexcel, OCR, IB, Other
Fiscal policy can have important effects on the supply-side of developed and developing countries.
Labour market incentives:
- Changes in income tax can improve incentives for people to actively look for work
- Lower taxes might also have a positive effect on work effort and labour productivity
- Spending on infrastructure provides the capacity needed for other businesses to flourish.
- Lower rates of corporation tax might attract inward investment from overseas
3.Entrepreneurship and investment:
- Government spending can be used to fund an expansion in new small business start-ups
4.Research and development and innovation
- Government spending and tax allowances could be used to encourage research
- Tax incentives can be used to stimulate investment in low carbon technologies
5.Human capital of the workforce:
- Spending on education and increased investment in health and transport can also have important supply-side effects in the long run
- Government spending can help to improve human capital, employability and productivity
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