Goals and Aims

• Long term economic growth : productive capacity
• Improve competition and efficiency
• Reduce labor costs and unemployment
• Reduce inflation
• Incentivise firms to invest in innovation by reducing costs

Two types

1. Market Based: Focus on allowing markets to operate more freely with minimal government intervention. Classical theory

• Reduction in income taxes: Higher taxes> disincentive> choose less work> income tax reduce>incentive to work hard be more productive> productive potential
• Reduction in corporate taxes: reduction> more money for investment> produce efficiently
• Reduction in trade union power: Protecting workers rights, well being,> bargaining power> raise wages> raise cost of workers> reduction in power> reduce their bargaining power> lower cost> more employment
• Reduction in minimum wages: effect> keeps the wage above the equilibrium wage> reduction> decrease cost of labor> increase employment
• Reduction in unemployment benefits: generous benefits> less incentive> reduction> encourage
• Deregulation: Many regulations: health, safety ,environmental laws> reducing these> cost falls> increasing potential output and unemployment falls.
• Privatisation: Profit maximising firms> more efficient> profit motive, incentive> more efficient productive> increasing potential output> Nationalised firms different objectives
• Policies to increase competition: Anti monopoly laws> increase competition> more efficient processes > r and D > outout increase
• Trade liberalisation: International competition increase > reduction in tarris, subsidies, etc> free trade> urge domestic firms to be efficient

LIMITATIONS:

• Reduction in income taxes>higher disposable> may choose to work less> fall productivity. Also reduction in income taxes may benefit higher wage earners> income inequality