Public Economics
Public economics is the branch of economics that studies the role of government in the economy, including taxation, government spending, and the design of public policy. It analyses how government intervention affects the allocation of resources, the distribution of income, and economic efficiency.[1]
Subject matter
Public economics is concerned with questions such as:
- What goods and services should the government provide?
- How should the tax burden be distributed?
- How do taxes affect behaviour and economic efficiency?
- How can market failure be corrected?
- How should public spending be financed?
Core areas
| Area | Description |
|---|---|
| Taxation | The design and effects of taxes, including efficiency and equity. |
| Transfer Payment | Redistributive payments such as pensions and unemployment benefits. |
| Public Goods | Goods that markets underprovide because of non-excludability and non-rivalry. |
| Externality | Costs or benefits not reflected in market prices. |
| Market Failure | Situations in which markets fail to allocate resources efficiently. |
Rationale for government intervention
Public economics identifies several justifications for government intervention, including the provision of public goods, the correction of externalities, the regulation of monopoly power, and the reduction of inequality. It also examines the costs of intervention, including inefficiencies created by taxation and the risk of government failure.[1]