What the Public sector is about?
Key roles of the government
- Allocation of resources
- Distribution of income
- Stabilization of economy, growth (Level of economic activity)
- Regulation
Without the private sector, the government cannot function. Also, without the government, the private sector will face difficulties.
Mode of analysis?
How should we analyze the public policies? There are two modes Positive and Normative .
Again, three fundamental questions:
- What criteria to be applied when judging the merits of various budget policies? Normative
- What are the responses of the private sector to various fiscal measures, such as tax and expenditure changes? Positive
- What are the social, political and historical forces which have shaped the present fiscal institutions and which have determined the formulation of contemporary fiscal policy?
Normative refers to how things should be done, setting a subjective standard to evaluate something. Q 1 should be viewed in that light. “Welfare Economics” talks about the normative aspects corresponding to the standards for efficient behavior of households and firms in the private sector.
- Private sector is the best
- But they sometimes are not able to tackle market failure and redistribution of wealth
- Thus, it leads to government telling the private sector about how things should be done, the normative aspect
Positive economics deals with what actually is. Q2 is related to this evaluation. Empirical studies have to be done to learn the effects of the interventions. Similarly, Q3 talks about the other factors contributing to the actions (political agenda etc.)