Discuss how effective a reduction in income tax would be in encouraging economic growth.

A cut in income tax means that workers have more disposable income. They are likely to spend some of this rise in income, leading to more demand in the economy. Firms will raise output to meet the increased demand, leading to economic growth; there will be a multiplier effect as increasing output will require more workers and demand will rise further. However, if workers just saved their extra income, this would not happen and the tax cut would not be effective. It is also possible that workers might decide to work less and maintain their take home payment.