Abstract
This paper examines the theory underlying what has been called supply-side economics in the context of claims that it would both increase employment and reduce the rate of inflation, thereby curing the stagflation from which the United States of America and others have been suffering. It concludes by considering, although only briefly, some international aspects of supply-side economics.
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Actually, his finding related to how much labour supply is decreased by the imposition of these taxes and he found these decreases to be 8 per cent for husbands and 30 per cent for wives. I have assumed that this effect is reversible and have turned the direction of the change around so that the increase in the labour supply of husbands is from 92 to 100 per cent or 8/92 and that of wives is from 70 to 100 per cent or 30/70. See Jerry A. Hausman, ‘Labour Supply’, in Henry J. Aaron and Joseph A. Pechman (eds), How Taxes Affect Economic Behavior (Washington, DC: The Brookings Institution, 1981), pp. 27–72. Hausman’s research made no allowance for the possible effect of changes in other taxes or in government expenditure or for the effects of taxes on career choice, on incentives to get education including skills, or the interaction between labour supply decisions of husbands and wives whereby an increase in the income of one spouse could increase or decrease the amount of labour offered by the other spouse. Hausman’s research was regarded as a substantial advance over previous research on the subject. See also Hausman’s ‘Income and Payroll Tax Policy and Labor Supply’, in Laurence H. Meyer (ed.), The Supply-Side Effects of Economic Policy, Proceedings of the 1980 Economic Policy Conference (Federal Reserve Bank of St. Louis, May 1981), pp. 173–202.
For Denison’s writings on these points see his paper, ‘The Contribution of Capital to the Postwar Growth of Industrial Countries’, in Hearings before the Joint Economic Committee of Congress called US Economic Growth from 1976–86: Prospects, Problems, and Patterns, vol. 3, or Brookings General Series Reprint no. 324. See also Denison, Accounting for Slower Economic Growth (Brookings Institution, 1979), p. 58; Why Growth Rates Differ: Postwar Experience in Nine Western Countries (Brookings Institution, 1967), pp. 140–41 and 145–46 and ‘The Contribution of Capital to Economic Growth’, American Economic Review, May 1980, pp. 220–24. For Denison’s latest study, ‘The Interruption of Productivity Growth in the United States’, see Economic Journal, vol. 93 (March 1983), pp. 56–77, or Brookings General Series Reprint 394. Another view is taken by J. R. Norsworthy, M. J. Harper, and K. Kunze in ‘The Slowdown in Productivity Growth: Analysis of Some Contributing Factors’, in Brookings Papers on Economic Activity; 2:1979, pp. 387–421.
If one sticks closely to the definition of productivity as output per unit of input, an improvement in the terms of trade cannot be called an increase in productivity because it is an increase not of output but of command over goods and services obtained from the sale of output. For the distinction between output and ‘command’ in this sense see Walter S. Salant, ‘Trade Balances in Current and Constant Prices when the Terms of Trade Change: Questions about some Eternal Truths’, originally published in Jacob S. Dreyer (ed.), Breadth and Depth in Economics: Fritz Machlup — the Man and His ideas (Lexington Books, 1978) and available also as Brookings Institution Reprint T-015, and Edward F. Denison, ‘International Transactions in Measures of the Nation’s Production’, in US Department of Commerce, Survey of Current Business, May 1981.
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© 1986 Jon S. Cohen and G. C. Harcourt
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Salant, W.S. (1986). A Critical Look at Supply-Side Theory and a Brief Look at some of its International Aspects. In: Cohen, J.S., Harcourt, G.C. (eds) International Monetary Problems and Supply-Side Economics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-18392-0_6
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DOI: https://doi.org/10.1007/978-1-349-18392-0_6
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