Government intervention in the economy is caused by the objective desire of government bodies to soften the inefficient and unfair functioning of a market economy. The reasons for regulating the economy by the state are:
1) population growth;
2) solving the problems of infrastructure and the environment;
3) solving the problems of unemployment, health, education, poverty, etc.
The public sector economy is expressed in the share of national income held by the government. In this case, management takes place in a single center. This type of economy is for the most part characteristic of socialist countries.
The public sector of the economy is a set of functions of the state in direct and indirect regulation. The first includes the direct participation of the government in the social sphere and economic activity. Indirect regulation is management without investments, when the state does without expenses on its part.
The public sector economy is aimed at solving the following tasks:
1) increasing its effectiveness;
2) ensuring equity in the distribution of income;
3) support for macroeconomic stability.
This can be done through a government spending and revenue policy or through a political fiscal mechanism. Meanwhile, the public sector economy shows a tendency to increase government regulation in the market. However, a market economy imposes certain rules and restrictions on the functioning of the government.
The market mechanism prohibits such a level of state intervention at which this device can be destroyed. Indirect regulatory methods, such as subsidies, taxes, and especially those that integrate seamlessly with the market, are effective.
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 it on purchases. Traditionally, in developed as well as developing countries, the produced public goods are the domain of government. The tax method releases part of the proceeds from the private sphere. And the state, in turn, directs these funds to the production of public values.
The public sector economy in direct and indirect state regulation performs government functions:
1) use of the mechanism of executive and legislative power to ensure effective private activity;
2) the adoption by the government of a number of antitrust or antimonopoly laws in order to increase competition for the effective regulation of business;
3) reduction of income inequality in society;
4) the creation of infrastructure or public goods to satisfy collective needs (national defense, information, healthcare, etc.).
As a result, the government is included in the circuit of market activity and becomes its organic part.