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BBC: India delivers surprise corporate tax cuts to boost economy

Article published: Sep 20, 2019

IB Economics syllabus: Macroeconomics (expansionary fiscal policy, supply-side policy)

A great article if you’d like to write about expansionary fiscal policy for your macroeconomic commentary. The Indian government has announced huge corporate (business) tax cuts in order to boost investment (and hence aggregate demand as investment is component of it). Don’t forget that in economics, investment is defined as firms buying capital goods. Therefore, as firms have more disposable income to spend on capital, they will also likely increase production levels and this can help boost economic growth, which recently has been declining, currently “sitting at a six-year low.”

Furthermore, you can also state that this policy will also boost the productive capacity of the economy (aggregate supply) and hence can be regarded as a supply-side policy. More specifically, it can be regarded as a market-based incentive-related supply-side policy as business tax cuts can be used to increase the incentive to invest and thus lead to the increased quantity and or quality of factors of production. This leads to economic growth in the long-run and shifts the LRAS curve to the right.

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