Tax cuts in the context of Reaganomics

In economics and political science, fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables developed in reaction to the Great Depression of the 1930s, when the previous laissez-faire approach to economic management became unworkable. Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics theorised that government changes in the levels of taxation and government spending influence aggregate demand and the level of economic activity. Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives. The combination of these policies enables these authorities to target inflation and to increase employment. In modern economies, inflation is conventionally considered "healthy" in the range of 2%–3%. Additionally, it is designed to try to keep GDP growth at 2%–3% and the unemployment rate near the natural unemployment rate of 4%–5%. This implies that fiscal policy is used to stabilise the economy over the course of the business cycle.

Changes in the level and composition of taxation and government spending can affect macroeconomic variables, including:

Supply-side economics is a macroeconomic theory postulating that economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade. According to supply-side economics theory, consumers will benefit from greater supply of goods and services at lower prices, and employment will increase. Supply-side fiscal policies are designed to increase aggregate supply, as opposed to aggregate demand, thereby expanding output and employment while lowering prices. Such policies are of several general varieties:

1. Investments in human capital, such as education, healthcare, and encouraging the transfer of technologies and business processes, to improve productivity (output per worker). Encouraging globalized free trade via containerization is a major recent example.
2. Tax reduction, to provide incentives to work, invest and take risks. Lowering income tax rates and eliminating or lowering tariffs are examples of such policies.
3. Investments in new capital equipment and research and development (R&D), to further improve productivity. Allowing businesses to depreciate capital equipment more rapidly (e.g., over one year as opposed to 10) gives them an immediate financial incentive to invest in such equipment.
4. Reduction in government regulations, to encourage business formation and expansion.

A basis of supply-side economics is the Laffer curve, a theoretical relationship between rates of taxation and government revenue. The Laffer curve suggests that when the tax level is too high, lowering tax rates will boost government revenue through higher economic growth, though the level at which rates are deemed "too high" is disputed.

The Conservative Party or The Right (Bokmål: Høyre, Nynorsk: Høgre, lit. 'Right', H; Northern Sami: Olgešbellodat) is a liberal-conservative political party in Norway. It is the major party of the Norwegian centre-right, and was the leading party in government as part of the Solberg cabinet from 2013 to 2021. The current party leader is former prime minister Erna Solberg. The party is a member of the International Democracy Union and an associate member of the European People's Party.

The party is traditionally a pragmatic and politically moderate conservative party strongly associated with the traditional elites within the civil service and Norwegian business life. During the 20th century, the party advocated economic liberalism, tax cuts, individual rights, support of monarchism, the Church of Norway and the Armed Forces, anti-communism, pro-Europeanism, and support of the Nordic model; over time, the party's values have become more socially liberal in areas such as gender equality, LGBT rights, and immigration and integration issues; the party defines itself as a party pursuing a "conservative progressive policy based on Christian cultural values, constitutional government and democracy". In line with its Western bloc alignment during the Cold War era, the party strongly supports NATO, which Norway co-founded, and has consistently been the most outspokenly pro-European Union party in Norway, supporting Norwegian membership during both the 1972 and 1994 referendums.

Beginning in 2008, many nations of the world enacted fiscal stimulus plans in response to the Great Recession. These nations used different combinations of government spending and tax cuts to boost their sagging economies. Most of these plans were based on the Keynesian theory that deficit spending by governments can replace some of the demand lost during a recession and prevent the waste of economic resources idled by a lack of demand. The International Monetary Fund recommended that countries implement fiscal stimulus measures equal to 2% of their GDP to help offset the global contraction. In subsequent years, fiscal consolidation measures were implemented by some countries in an effort to reduce debt and deficit levels while at the same time stimulating economic recovery.