Public Sector Fundamentals: Roles, Structure, and Economic Policy

The public sector includes the economic activities of a nation that fall within the governmental sphere. Within the public sector are public companies that are not organs of government, while within the State there are economic bodies such as courts.

Economic Perspectives on State Intervention

• Classical Economists: Advocate economic liberalism and are therefore not in favor of state intervention in the economy.
• Socialist Economists: Followers of Marx, they believe that the state must have a key role in economic life.
• Keynesian Economists: They favor the state becoming a trader.

Duties of the Public Sector

1. Regulatory Function: To regulate the activity of economic agents through the promulgation of legal rules (laws, decrees, etc.).
2. Allocation Function: The state performs this function when it produces or provides goods and services, including roads, public transport, etc.
3. Fiscal Function: Exercised by the state through the fixing and collection of taxes, which funds part of public expenditure.
4. Redistributive Function: Involves the variation of income distribution among individuals, regions, or social groups.
5. Stabilizing Function: The state performs this work when it intervenes in macroeconomic variables to smooth fluctuations that may occur therein.

Structure of the Public Sector

Spatial Criteria for Public Sector Structure

• Supranational Level: Includes parts of the EU institutional system, such as the European Commission and the Council of Ministers.
• National or Central Level: Public institutions and powers whose actions have repercussions throughout the country, such as ministries.
• Regional Level: Comprises public entities whose actions and skills affect any of the seventeen autonomous communities that make up the Spanish territory.
• Local Level: Includes municipal corporations (municipalities) and provincial corporations (councils).

Public Sector Structure by Economic Function

• General Government: Produces goods and services that are offered to the public free of charge or at a price below their cost (e.g., Central Administration, Territorial Administration, Social Security).
• Public Companies: Produce goods and services similar to those of private initiative. The main difference is that public companies pursue public welfare, while private companies seek to achieve maximum profit.
• Credit Institutions: Engage in financial transactions under government oversight (e.g., Bank of Spain, ICO).

Economic Policy

Government intervention in the economic affairs of a country in order to achieve certain objectives.

• An objective of any economic policy is a general aspiration a society seeks to achieve.
• A means is any instrument or variable of economic policy that governments can control and use to achieve the objectives set.
  • Direct Instruments: Those which restrict the free operation of the markets.
  • Indirect Instruments: Those using the price system to alter the behavior of markets through various measures.