The public sector
Principles of Economics // Fall 2025
marcio.santetti@emerson.edu
The government & the economy
The government & the economy
Two sides:
Expenditures side;
Revenue side.
The government & the economy
Expenditures side:
What kind of services should the government provide, if any?
Why should the government be spending billions of dollars on aid to local schools, health insurance for the unemployed, and new electrical grids?
Why is the government the primary provider of goods and services such as highways and education?
Then why the provision of goods and services such as clothing, entertainment, and property insurance is generally left to the private sector?
The government & the economy
Revenue side:
How much should the government tax its citizens?
How should the amount of taxes be related to the economic circumstances of those individuals?
What kinds of activities should be taxed or be given tax relief in difficult times?
What effect do taxes have on the functioning of the economy?
The government & the economy
3 questions:
- When should the government intervene in the economy?
- How might the government intervene?
- What is the effect of those interventions on economic outcomes?
The government & the economy
[1] When should the government intervene in the economy?
Two occasions:
Market failures;
Redistribution.
The government & the economy
- Market failures:
Efficient interactions?
The government & the economy
- Redistribution:
“Too-well-off” vs. “not-well-off-enough” citizens.
The government & the economy
[2] How might the government intervene?
Several ways:
Price mechanism;
Restricting/mandating private sales/purchases;
Direct provision of goods/services;
Financing private entities.
The government & the economy
[2] How might the government intervene?
- Price mechanism:
Taxes: ↑ prices;
Subsidies: ↓ prices;
The government & the economy
The government & the economy
The government & the economy
[2] How might the government intervene?
- Restricting/mandating private sales/purchases
The government & the economy
[2] How might the government intervene?
- Direct provision of goods/services
The government & the economy
The government & the economy
[2] How might the government intervene?
- Financing private entities.
The government & the economy
[3] What is the effect of those interventions on economic outcomes?