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The economics of the public sector Definition

Public sector organizations refer to the entities that are found and funded by government to accomplish various economic activities of the state or nation at large to enhance social welfare and market efficiency.

Overview of The Economics Of The Public Sector


The government establishes public sector organizations to ensure that the required services are rendered to the public. The primary functions of public sectors are to promote the overall economic growth and regulate economic activities. There are various policies regulated by the federal government to control the economy. Some of them are property rights law, encouraging competition among business, maintaining public services, establishing economic institutions, provide safety, etc. Stability is another important objective of public sectors. They have strong fiscal and monetary policies to bring in the balance during the volatility of the economy. The economy as a whole is very versatile. It consists of a large number of components of trading.

  • Fiscal policy:

Fiscal policy refers to periodic modification in tax slabs and stimulating spending programmes. These policies are implemented concerning to expand aggregate demand by taking care of deficits during recession.

  • Monetary policy:

Monetary policy is solely controlled and operated by the nation’s central banking system to promote sustainable growth in the economy by regulating money supply in the market. Balanced increase or decrease of money circulation in the market is the sole because of this policy. It is further categorized into expansionary and contractionary monetary policies. Expansionary policy is implemented during recession and contractionary policy is implemented during inflation to have a stable circulation of money in the economy.

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What you’ll learn:

The economics of the public sector DefinitionOverview of The Economics Of The Public SectorRole of Public Sectors in the Economy:Goals of the public sector

Role of Public Sectors in the Economy:

Government with the channels of public sectors tries to maintain stability in the economic environment. Economy is something that leads its citizens to lead a sustainable life. A fall in the economy is as natural as its growth. The economic crisis involves recession, increased unemployment, devaluation, etc. The public sector aims to uplift the overall economy by facilitating balanced socio-economic environment. Some of them are explained below:

Fiscal Policy:

Government spending and tax policies influence the economy at a great extent. Providing sustainable growth and reducing poverty is the primary protocol the government follows during spending. The government mostly spends on public goods such as roads, defense, medical, education, welfare payments, pensions, unemployment, disability benefit, etc. These facilities are channeled through public sectors, and all these facilities have a direct impact on the society and its residents.


Externality refers to the side effects faced by various other participants in the economy because of one such economic activity. This needs to be resolved in order to bring in the balance and encourage the economy. Hence, the EPA (Environmental protection Agency) was formed in 1970 to offer public sector solutions to environmental externalities’ concerns. To address such problems in the economy, the public policy makers try to resolve by having

  • Strong price policy through corrective taxation and subsidies.
  • Regulations on quantity protocols.

Promoting Equity:

Inequality is the cause of major social problems in society. It is a concern for public administrators. Hence, the government keeps introducing various measures and remedies to keep inequality at bay. Some of them are increasing minimum wages, expanding the earned income tax, building assets for working families, investing in education, etc.

Property right:

Resources prevail everywhere until one knows to value them. Some are in abundance and some in scarce. In order to protect and prevent the resources from being misused, the government grants property rights. By assigning a particular concern by providing property rights, it is empowering the concern and levying the responsibility to look after the resources or property.

Optimal taxation:

Public sector tries to strategize the optimal taxation policy to enhance or maximize social welfare.

Goals of the public sector

  • Enhance overall economic growth by encouraging industrialization.
  • Equality of income and Wealth by monitoring or supervising the economic growth of the nation.
  • Curb Unemployment: By setting up different verticals to increase the efficiency and thereby opening lots of vacancies. Public sectors try to maintain macroeconomic stability.
  • Equilibrium in regional growth: Proper identification of resources and logical approach to utilize those resources help to maintain a balanced regional growth. It tries to eliminate poverty.
  • To assist private sectors by funding when necessary.
  • International trade: Public sectors on a large scale try to improve international trade and welfare.
  • Funding for financial development.

Structure of the Public Sector and Economic Activities:


Both public and private sectors play a significant role in attaining economic growth. Socio-economic development is the outcome of their effort in the nation. Public sector refers to a vertical owned by a government and that dedicated to society. Public sector fulfils some of the major utilities that are not easily fulfilled by any other sectors like roads, railways, militant services, civil services, etc. These are mostly non-rival consumption goods that have no limit set on the usage, such as roads.

Some of the public sectors in the US are

  • National defense
  • Homeland security
  • Police protection
  • Firefighting
  • Housing and Urban planning

Total of 15.3 percent, equal to 20.2 million employees, is employed with the US Public sectors. Public sector employment is further divided into 3 sub-sectors and they are

  • Federal Government: Legislative, judicial, and executive jobs such as civil service jobs, research, military, aviation, etc.
  • State Government: Law enforcement, infrastructure, education, and postal services.
  • Local Government: Social welfare, agricultural domains, etc.

Economic activities of public sector organizations:

  • Safety of private properties
  • Ensuring that proper law and order is under maintenance
  • Enhance employment opportunities
  • Provide public education
  • Promote socio-economic activities like healthcare, transport, safety, etc.
  • Raising taxes
  • They are establishing regulatory authorities for all the major sectors like finance, stock, telecom, banking, insurance, education, etc.
  • Protection of illegal economic activities
  • Macroeconomic management to encounter economic cycle – Inflation and recession
  • Introduction of various schemes to empower underprivileged, unemployed, older, homeless, and others.

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