This paper would explore the appropriateness of government intervention in the economy, which is a highly debatable topic. For example, free market economists would argue that there should be a strict limitation on government intervention as it often leads to an inefficient allocation of resources. However, many might argue that government intervention is necessary in different fields (Pettinger, 2012). The appropriateness of government intervention will be evaluated by considering its implications on various factors such as social welfare and efficiency. This paper will start by describing the three types of economic systems then, section 2 will describe the different forms of government interventions in the market system.
It makes the market become not efficiently because the marginal benefit is lower than the marginal cost (MB < MC), the efficient point is the point that the marginal social benefits are equal to the marginal social costs. If the external cost is happened, the government will come to solve the situation because they are endowed with certain right of compulsion that private institutions don't have such as they has the right to force you to pay taxes. There are two things that the government can internalize to externalities. The first one is “Corrective Taxes” and the last one is “Corrective Subsidies”. On the one hand, a corrective tax is designed to adjust the MPC of a good or service in such a way as to internalize the externalities and
Macro Economics Reasons for Government intervention Governments may intervene in markets to address inefficiency. In a fully efficient market, resources are given to those who need them and in the quantities that they may need them. In inefficient markets that is not the case, some may have too much of a resource while others may a lack of it. The government tries to fix these inequalities through subsidies, regulations, and also taxation. Another reason for the intervention is to promote social welfare by involving public goods such as depletable goods, such as public parks that are not owned by an individual person.
Therefore forecasting the former will be subjected to some faults and may to be difficult than the latter. The variations in government policies or the fundamental formation of the economy might lead the changes in the parameter values such as α and β’s this can weaken the accuracy of the forecast. The model mentioned above (equation 1) can itself be wrong. Another approach as mentioned above is the Purchasing Power Parity (PPP). According to (Chen et al, 2003) PPP based foreign exchange rate forecasts also belongs to the fundamental stream of the model-based approach.
Under both definitions the process involves, whether explicitly or implicitly, weighing the total expected costs against the total expected benefits of one or more actions in order to choose or more profitable option. Cost – benefit analysis is typically used by governments to evaluate the desirability of a given intervention. It is heavily used in today’s governments. It is an analysis of the cost effectiveness of different alternatives in order to see whether the benefits outweigh the costs. The cost and benefits of the impacts of an intervention are evaluated in terms of the public’s willingness to pay for them (benefit) or willingness to pay to avoid them (costs).
Political culture is a set of core ideals, norms, and values identifying the underlying assumptions and principles governing the political system. Every country forms its own political culture determining the relationship between the society and the government. Even though not all Americans have the same views, the majority follow the general democratic ideals, including liberty, equality, individualism, and diversity. The political system tends to discover the most appropriate way to achieve these ideals. In fact, a full understanding of the political culture allows developing and better organizing the government, as well as the political decisions taken by the leaders.
The system of control and dispersal of financial revenue is a core component of fiscal decentralisation - whether such revenue is raised locally or is transferred from the central government. Fiscal decentralisation is concerned with the distribution of fiscal responsibilities and the consequent interactions between the national and local governments. It includes the design of intergovernmental fiscal transfers that shift general revenues from taxes collected by the central government to local governments and the extent to which municipalities may borrow from private financial institutions. It also relates to financing local governments and the extent to which local service delivery will be subsidized (Oates, 1999). Devolving financial authority to lower levels of government reduces central government’s control over public expenditure.
Even then, these two modes of government (unitary and federal) provide different opportunities for fiscal decentralization (Intergovernmental Fiscal Relations 2001). Fiscal decentralization involves shifting of responsibilities for expenditures and/or revenues to lower levels of government (Intergovernmental Fiscal Relations 2001). It takes accountability of governments through financial responsibility (Intergovernmental Fiscal Relations 2001). However, this responsibility goes to a certain extent for the level of autonomy and the ability to raise revenue are two important factors (Intergovernmental Fiscal Relations 2001). With this form of decentralization, accountability is best promoted because of the fact that expenditure and revenue are closely watched over by the
It means that the balance of payments consequences of trade liberalization matter in Pakistan. . The balance of payments crises have shown that output growth has been thwarted in Pakistan by its balance of payments positions. Further, trade openness policies in Pakistan have not been complemented with export promotion plans, which could provide valuable foreign exchange for higher imports originated mainly by liberalization policies. An important policy implication therefore is that Pakistan should liberalize its exports and imports in such a manner that a balance is achieved between exports and imports.
Subsidy plays very important role in the economic development of any country. It brings out desired changes by stabilizing the price of essential good & services, optimum allocation of resources, redistribution of income in favor of poor people and thus achieving both the objective growth & of the equity of nation. Subsidy is used to modify market outcomes, especially to take account of positive externalities, and, thus promote certain well-defined redistributive objectives. Prest  had studied in his paper that economists have not settled upon a commonly acceptable definition of subsidy. Shrivastava D.K.