The Public Sector's Role and Influence on Economic Policy
Key Features of the Public Sector
- Regulatory Function: It establishes laws and rules (e.g., consumer protection law, competition law).
- Allocation Function: The state provides support, goods, or services (e.g., scholarships, subsidies).
- Fiscal Function: Collects taxes from society to be earmarked for public spending.
- Redistributive Function: Redistributes income among people and regions.
- Stabilizer Function: Intervenes in macroeconomic variables to smooth out fluctuations that may occur.
Structure of the Public Sector
By Geographical Area (Spatial Approach)
- Supranational Level: e.g., European Union
- National Level: e.g., Ministries, Cabinet
- Regional Level: e.g., Regional Councils
- Provincial or Local Level: e.g., Delegations and Councils (Municipalities)
By Governmental Role
-
General Government: Produces goods and services offered to the public for free or at a price below their cost.
- General Administration: Ministries
- Territorial Administration: Delegations, municipalities, provincial councils
- Social Security Agencies
- Public Enterprises: Produce goods and services similar to private initiatives. Public companies seek social welfare, while private companies seek maximum profit.
- Credit Institutions: Engage in financial transactions that the government monitors (e.g., ICO).
Economic Policy
Economic policy is the government's intervention in a country's economic affairs to achieve certain objectives.
Purpose of Economic Policy
The ultimate ends are general aspirations aimed at achieving a better society:
- Material Welfare: Income redistribution.
- Freedom: Hearing the views of all.
- Solidarity: Helping others.
- Peace and Safety: Ensuring the security of society.
- Equity: For all citizens.
The objectives of economic policy are the quantification of its aims:
Economic Objectives
These seek to achieve general economic welfare through:
- Economic growth
- Full employment
- Price stability
- Balance of payments
- Distribution of income and wealth
Social Objectives
These seek to improve social welfare by improving education, protecting the environment, and fostering international cooperation.
Fiscal Policy
Fiscal policy is the set of modifications made to government revenue and expenditures to influence economic activity. The principal instruments are public expenditure and public revenue.
Expansionary Fiscal Policy
This is used during periods of low production and high unemployment when we want to raise the level of economic activity in the short term. Methods include:
- Increased public spending on goods and services.
- An increase in transfer payments.
- A decrease in taxes.
- A combination of the above.
Contractionary Fiscal Policy
This is used during periods of excess aggregate demand when we want to lower the level of economic activity in the short term. Methods include:
- Decreased public spending on goods and services.
- A reduction in transfer payments.
- An increase in taxes.
- A combination of the above.