Public Sector Roles, Fiscal Policy & Money Functions
Public Sector Roles
Public sector roles:
- Regulatory function: To regulate the activity of economic agents through legal and regulatory standards to create a framework that provides the transparency and certainty necessary for the proper functioning of economic activity.
- Provision (mapping) function: The state performs this function when it produces or provides goods and services such as roads, transport, etc.
- Tax function: The state exercises this function through the assessment and collection of taxes and funds to finance much of public expenditure.
- Redistributive function: The variation of the distribution of income among individuals, regions, or social groups in order to reduce existing inequalities.
- Stabilizing function: The state performs this role when it intervenes in macroeconomic variables in order to smooth fluctuations that may occur.
Objectives of Economic Policy
Objectives of economic policy:
- Economic growth: Increasing production without exhausting resources.
- Full employment: Job creation; reduction in cyclical unemployment in the short term and reduction of long-term structural unemployment.
- Price stability: Maintaining the overall level of prices.
- Equilibrium of the balance of payments: Reduction of external deficits in the medium term and maintaining the level of foreign currency reserves.
- Distribution of income and wealth: Progressive reduction of differences in personal income and a decrease in the concentration of wealth.
Public Expenditure
Public expenditure: Payments that the public sector contracts because of its intervention in the economy. For classification, three criteria are used: organic, functional, and economic.
Public Revenues
Public revenues: Resources that the public sector receives to meet expenditure commitments reflected in the budget. They can be grouped by various criteria:
- Income tax: Payments that taxpayers are obligated to make to the public administration.
- Social security contributions: Contributions that workers and employers make to the social security organization in order to receive certain benefits.
Characteristics of Money
Money features:
- Durable: Maintains its value over time and can be used repeatedly.
- Transportable: Permits payment in distant locations and can be managed easily.
- Divisible (fractions): Can be divided to enable use in all types of transactions.
- Generally accepted: Social acceptance may stem from intrinsic value or legal recognition.
Functions of Money
Functions of money: Money serves three primary functions:
- Means of payment: Money is a generally accepted medium of exchange, which resolves the difficulties of barter.
- Store of value: Money can be stored more easily than many other goods and does not deteriorate quickly.
- Unit of account: The valuation of all products, wages and incomes is performed in monetary units, which allows calculations and comparisons.