The Economic Policy of Ronald Reagan: Between Supply-Side and Keynesianism

Abstract

“Reaganomics” is a popular term used to refer to the economic policies of Ronald W. Reagan, the 40th U.S. President (1981-1989), which called for widespread tax cuts, decreased social spending, increased military spending, and the deregulation of domestic markets. In this paper, we analyze American economic policy during the Eighties. After a brief introduction, where a general economic context of that country is shown, we discuss and revise the economic literature about these issues. Afterwards, we present an augmented IS-LM model for Reagan years, estimated by VECM techniques, discussing the major econometric findings. Finally, we suggest some concluding remarks.

Keywords: Reaganomics, Supply-Side Economics, Laffer curve, tax cuts, twin deficits, augmented IS-LM model, VECM

JEL Classification: A1, C22, H1, N42