Evaluate the likely impact of cutting tax rates as a policy to increase economic growth. (June 2020)

In 2018, the United States Government cut the corporation tax rate (tax on company profits) from 35% to 21%. Income tax rates for US citizens were also reduced: for example, the top rate of income tax was cut from 39.6% to 37%. Evaluate the likely impact of cutting tax rates as a policy to increase economic growth. (June 2020)

• INTRO - four economic objectives
• P1 - this is an example of fiscal policy - multiplier effect (confidence) economic growth achieved – lower unemployment achieved
• Diagram - AD right shift
• Evaluation - increase in inflation, increase in the budget deficit
• P2 -this is also an example of supply-side policy - higher e.g. - lower u.e. - better b.o.p - lower inflation - ACHIEVES ALL FOUR OBJECTIVES
• Diagram - LRAS right shift
• Evaluation - opportunity cost and time lag
• Judgement - considering all the four objectives and possible conflict - it is a good policy where the only main downside is the budget deficit and national debt - but if more people are working - they can collect more overall