Understanding the Public Sector: Economic Functions and Policy

The Public Sector: An Overview

The public sector comprises institutions whose activities are guided by political decisions. It is divided into public administration and public enterprises.

Economic Functions of the Public Sector

The public sector serves several key economic functions:

• Acting as an economic agent.
• Regulating economic relations.
• Providing public goods.
• Implementing economic policy.

Regulation

Regulation involves establishing standards and procedures that economic agents must follow to address economic problems.

Reasons for Regulation

• To compensate for market failures.
• To provide collateral security.
• To ensure the common good.
• To guarantee efficiency.
• To ensure fair competition.

Deregulation

Deregulation involves eliminating laws and regulations that affect consumption and production.

Areas of Regulation

• Economic Regulation: Protecting competition.
• Social Regulation: Environmental standards.
• Regulation of the economic system (important rules in areas not easily quantified).

Advantages and Disadvantages of Regulation

Disadvantages:

• It can stifle economic activity.
• Regulators may lack sufficient expertise.
• Regulations can cause delays.
• Powerful groups may seek to manipulate regulations for their benefit.

Advantages:

• Provides security in economic relations.
• Allows for the internalization of social costs and benefits.

Taxation

• Direct Tax: Considers wealth.
• Indirect Tax: Does not consider wealth.
• Progressive Tax: Higher income, higher tax rate.
• Regressive Tax: Not designed with specific purposes.

Economic Policy

Economic policy is the set of measures taken by public authorities to achieve specific economic goals.

Objectives of Economic Policy

• Economic growth.
• Full employment.
• Price stability.
• External balance.
• Equitable distribution of income.

Instruments of Economic Policy

• Monetary and credit instruments.
• Fiscal instruments.
• Commercial instruments.
• Direct controls.
• Institutional changes.

Types of Economic Policy

• Level of Performance: Macroeconomic and microeconomic.
• Temporary Duration: Short, medium, and long term.
• Orientation: Sorting and processing.

Fiscal Policy

Fiscal policy is government intervention through public revenue and expenditure programs.

The General State Budget is a document that records all items of expenditure and revenue.

Public Expenses

Public expenses are all payments made by the state over a year in developing its various activities. They are divided into current expenditures, capital expenditures, and transfer payments.

Public Revenues

Public revenues are all resources the state receives to make the payments provided for in the budget. Types of revenue include taxes, social contributions, and other revenue.

Functions of Budget Policy

• Stabilizing the economy.
• Stimulating more desirable economic behavior.
• Promoting a more just distribution of income.