The Government Sector

Governments impinge on the economy in at least four ways:(i)General government They provide goods and services (e.g., schooling, police services and defence) in areas in which private enterprises would not do so, or would do so in a way judged socially sub-optimal by the polity.(ii)Transfer payments They transfer command over goods and services from certain groups to others (e.g., from the employed to the unemployed).(iii)Public enterprises They run certain trading enterprises which (at least in theory) could be run with the same or higher social efficiency by private enterprise.(iv)Macroeconomic management They attempt to modify the evolution of the economy so as to avoid the more extreme troughs and peaks in economic activity.