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MATRIC NO: 2014/1774
public sector economics is the branch of economics that focuses on the activity of the
government that are economic in orientation with a view to influence the behavior or
performance of any macro economy or economy in a nation

Public sector economics is an

area of study that is directly relevant to our everyday lives. It affect the taxes we pay, the buses
and trains on which we travel, the worker who empty our bins, the gas and electricity delivered
to our homes and even the water coming out of our taps.
Public sector economics is concerned with justifying the existence of government and
explaining how they can affect economic activity. It explains how the invisible hand of the
market is tempered by the visible hand of the government in the mixed economy of both private
and public sector adopted by the vast majority of nations. Traditionally, public sector economics
has been concerned with the study of how government can deal with failures of market to
achieve efficient outcome. Possible remedies which are considered include using public
expenditure and taxation, taking some firms into state ownership and introducing regulations.
Public economics is about the role of government and the different ways in which government
polices affect the economy. It develops an analytical framework and facilities, the evaluation of
public policy and subsequently informs the public debate. Public sector economics is the study of
government policy through the lens of economic efficiency and equity.
There are four main areas of public sector economics which are
1. Public expenditure: in order to perform the various functions, the government incurs
expenditure out of the revenues collected by the states authorities from different sources.

In this part of public expenditure we study the main principles of public expenditure
along with the effects of expenditure of various sector and also the ways and means
through which the government keeps a check on its expenditure
2. Public revenue: one of the main nature of public sector economics is public revenue, it
studies various sources from which the government collects revenues. Tax is the source
of public revenue hence all principles of taxation and incidence of taxation are the subject
matter here. Public sector economics is interested in the spending of the government.
3. Public debt: like individuals, the government also borrows funds from the public to meet
its obligations and certain abnormal situations like war, farming, flood or natural
calamities. The reason is that the government expenditure exceeds its income in abnormal
times. The deficit in the budget is met by the government by borrowing funds from the
public. Now, the government borrows funds in normal situations for its promotional
functions i.e. for the economic development of the country. This part of public sector
economics deals with the borrowing activities of the government.
4. Financial administration: this studies how the government controls its financial operation
or in other words the problems of financial management. It covers matters like
preparation of budget and its approval from the legislature, the audit of government
account and other related matters.
Other natures include:
5. Stabilization of the economy: In these present times public sector economics is mainly
concern with economy stability and other related problems of the country. For the
attainment of these objectives the government formulates its fiscal policy comprising of
various fiscal instruments directed towards the economic stability of the nation.
6. Federal finance: this is concern with distribution of sources of income and expenditure
between the central and state government in the federal system of government.
1. protection of infant industries: the government of an undeveloped country protects its
infant industries against foreign competition through various public finance activity like
imposition of heavy tariff duties on imports, putting restrictions on imports given
subsidies to keep the cost low etc the objective of such operation is to enable these
industries to stand on their legs against foreign competition
2. Planned economic development: this renders valuable help in the planned economic
development of the country. The planning authorities fix the priorities of the expenditure
for the planned period. The government raises the necessary funds to implement the plans

through direct and indirect taxes. The government takes necessary actions to achieve the
plan objectives through fiscal measures.
3. Reducing inequality: this also plays a vital role in reducing social inequality through its
fiscal policy. The government can levy heavy taxes on the richer solution of the society
because they have capacity to pay and spend the income received on providing various
facilities to poorer sections of the society such as providing free medical facilities,
educational facilities, cheap housing etc. thus on the other hand it reduces the purchasing
power of the richer section and on the other hand increasing the purchasing power of the
section of the society.
4. Maintaining balance of trade: The governments always restrict the import only on the
essential items, hence import on non essential items is taxed heavily, and on the other
hand the government encourages the export of its surplus production. It reduces the
burden on export items and also supports items with subsidiaries and grants. These
operations restricting import and encouraging export of the government and maintaining
the balance of trade.
5. Regulating consumption habit: this relates the consumption habit of the people. It
imposes taxes on items of consumption, the use of which is to be discouraged such as
wine, cigarette, tobacco etc. and allows concentration and rebates in taxes if it likes to
encourage the consumption of any commodity in practice. It can be seen that through tax
policies government is able to encourage or discourage the demand on various
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