Government Policy Notes: 3.0 Nature and scope of the Government
Public Sector comprises of two groups
• Budget Sector: Privides institutional and organisational framework by which services are delivered to the public
• Government Business enterprises: Trading entities in which government is either share holder or owner.
Economic Roles of the government
1. Provision of goods and services
? Provide public infrastructure (e.g. roads, power, communication and health)
? Government provides three types of goods
i. Private goods: Provided on user tax basis e.g. water. Include important goods that relatively inelastic which could harm lower income earners.
ii. Public goods: Non exclusive and non rival in consumption
iii. Merit goods: Heavily subsidized goods aimed to create external benefits for third parties as free market only values private owners. e.g. state education
2. The Provision of welfare Services
? Government has role to provide financial security to lower income earners
? Federal government allocates over 40% of its budget for welfare services
3. Government influence on business activity
? Controls natural monopolies as private monopolies may increase prices at the detriment of consumers. E.g. water supply, railway line.
? control business conduct such as product safety hazards, advertising regulations.
? Control externalities (e.g. levels of pollutions) through taxation and liscencing.
4. Macroeconomic management
? Reduce Fluctuations in business cycle
Government Economic Objectives
• Sustainable Economic Growth: The increase in the capacity of an economt to satisfy the needs and wants of an economy without straining resource supply.
• Price Stability: The appreciation of the ...