State intervention in the economy is caused by the objective desire of government bodies to mitigate the inefficient and unfair functioning of the market economy. The reasons for state regulation of the economy are:
1) population growth;
2) solving infrastructure and environmental problems;
3) Solving the problems of unemployment, he alth care, education, poverty, etc.
The economy of the public sector is expressed in terms of the share of national income that is in the hands of the government. In this case, management takes place in a single center. This type of economy is mostly characteristic of socialist countries.
The public sector of the economy is a set of state functions in direct and indirect regulation. The first includes the direct involvement of the government in social and economic activities. Indirect regulation is management without investment, when the statedispenses with expenses on its part.
The economy of the public sector is aimed at solving the following problems:
1) increase its efficiency;
2) Ensuring equity in income distribution;
3) supporting macroeconomic stability.
This can be done through government spending and revenue policies or through a political fiscal mechanism. Meanwhile, the economy of the public sector shows a trend towards increased state regulation in the market. However, the market economy imposes certain rules and restrictions on the functioning of the government.
The market mechanism forbids a level of government intervention that could destroy this device. Indirect methods of regulation, such as subsidies, taxes, and especially those that are organically built into the market structure, work effectively.
The public sector of the economy is a system in which the state acts as an agent that receives income in the form of taxes and spends them on purchases. Traditionally, in developed as well as developing countries, the public goods produced have been the province of the general government sector. The tax method releases part of the income from the private sector. And the state, in turn, directs these funds to the production of public values.
Economics of the public sector in direct and indirectstate regulation performs government functions:
1) using the mechanism of the executive and legislative branches to ensure efficient private activity;
2) government enactment of a series of anti-trust or anti-monopoly laws in order to increase competition for efficient business regulation;
3) reducing income inequality in society;
4) building infrastructure or public goods to meet collective needs (national defence, information, he althcare, etc.).
As a result, the government is included in the cycle of market activity and becomes its organic part.
