Public Sector: Functions, Structure, and Economic Objectives

The Public Sector

The public sector integrates the economic activities of a nation within the governmental sphere. Classical economists advocated for economic liberalism and, therefore, were not in favor of state intervention in the economy. Socialist economists, followers of Karl Marx, think that the state has to have a central role in economic life. Keynesian economists, followers of the theories of John Maynard Keynes, are in favor of the state becoming an economic agent.

Principal Functions of the Public Sector

1. Normative Function: Regulating the activity of economic agents through the broadcast of legal norms, laws, decrees, etc.
2. Allocative Function: The state performs this function when it produces or provides goods and services, such as roads, public transport, energy, justice, and education.
3. Tax Function: The state exercises this function by setting tax collection, and with these funds, much of the public costs are covered.
4. Redistributive Function: Consists of the variation of the distribution of income between social persons in order to reduce existing inequalities.
5. Stabilizing Function: The state performs this work when macroeconomic variables are involved in order to smooth fluctuations that might occur in them.

The Spanish Public Sector

We must place the supranational level of the institutional system as part of the EU institutional system, although the Community administration actually has some peculiar characteristics that make it difficult to precisely demarcate it clearly. At the national or central level, actions and skills have repercussions throughout the country. At the regional or autonomic level, actions and skills affect any of the seventeen autonomous communities comprising the Spanish territory. Finally, at the local level are the municipal corporations and provincial corporations.

Scheme of Public Administration

• Government: Nations, social security, national public, justice.
• Companies: Credit, national (RENFE).
• Institutions: Credits to companies.

Objectives of Economic Policy

• Increasing Economic Growth: Without depleting production resources. It is measured by the average annual growth rate of GDP or GDP per capita.
• Full Employment: Creating jobs, reducing short-term cyclical unemployment and long-term structural unemployment.
• Price-Level Stability: Maintenance of the general price level. For its measurement, indicators such as the Consumer Price Index (CPI) and the Wholesale Price Index are used.
• Balance of Payments Equilibrium: Reduction of the medium-term foreign deficit and maintaining the level of reserves of foreign currency. It is measured by the balance of the current account, the evolution of the trade balance, and the evolution of exchange rates.
• Income and Wealth Distribution: Progressive reduction of the differences between personal income and decreased concentration of wealth. It is measured through the distribution of total disposable income, the percentage of families with a household income less than the average, and the spatial distribution of income.