What is Public Economics? 

Economics is a discipline that deals with the production distribution and consumption of goods and services. Economics is further divided into Macroeconomics & Microeconomics. Microeconomics concern with that decision where the impact is at the individual level or that influences Individual or Business entities at the Individual level. For example - an individual plans his budget as per his income. However, macroeconomics is a concern with the wider perspective. The studies of economic growth of a country come under macroeconomic. It would have an impact on all classes of people, individuals, businessmen, industrialists, and others. The increase in direct and indirect taxes will result in a cut in disposable income. Taxation policy differs from country to country. Similarly, strategic planning by regulatory bodies of a country will have its effect on various classes of Business operating in-country. 

Public Economics is all about the countries Policy framed for the welfare of citizens. Policies are framed in such a way so that it has an immense benefit on all sections of society. It also enables a country in devising a better strategy in policymaking, also Public economics takes the help of various theories of economics that is based on the assumptions crucial to investors and consumers. It encapsulates the behavioral approach of the consumer as well. Public choices vary as per consumer behavior and the Price of Products. Research with respect to economics and taxation helps the country in policy formulation. The contribution of scholars in the field of research is of great help for all the economies. Further studies by scholars of other countries and help policy framers with respect to taxation and other Policies. 

Impact of Policy on Economy 

 Policies affect the economy to a great extent. The policies to regulate direct and indirect taxes and subsidies on particular goods have a significant effect on the market. Taxation is one of the sources of revenue of a Country. It affects the budget of individuals. Also, it has significant effects on Industrialists as well. When there is an increase in taxes on certain Products it affects Public choices. 

In economies due to several factors like externality and internal factors or changes in demand of consumer-led to a fluctuation in the markets. These fluctuations result in market failure. The role of the regulatory bodies of a country is to resolve these challenges so that the economies remain healthy. When the economies would be healthy it will have its benefits on all stakeholders as well as consumers. It will result in better productivity. So, the regulatory authorities frame certain policies based on respective theories of economics and prevailing market condition to ensure transparency of the market. If there being proper checks on the market then there are fewer chances of irregularity else the market would suffer. And again some other measures would be initiated to prevent the market from further failure and to keep it robust. 

Designing Better Public Policy for maximum social welfare: The Government has to ensure social equity and overall development. This can happen only when the policies are competent enough to resolve the problems of the economy. It can be achieved by devising such policies that meet the gap. The gap between optimum equity i.e., the goal and the reality in the equity. The maximum social welfare can be achieved by eliminating the prevailing inequality. Economists take help and guidance from various proven theories to devise better Public Policy.

The Intervention of Government in the Economy

The intervention of a regulatory body of a country is inevitable to ensure the proper functioning of the Market. As a country regulates the market condition through regulatory bodies by devising such policies. Also, the role of a regulatory body is to ensure overall social welfare for all. There may be a market failure due to various reasons. There may be a reason for externality or any others.  

In short, it can be said to manage the overall organizing framework of the market, intervention of regulatory bodies becomes obligatory. The cases of undesirable outcomes from the private market can be experience and only regulatory bodies can tackle these measures through devising innovative regulatory Policies. The objective is to get desired output from Private Market. 

Government intervenes in the market through its Policies. Generally, there is a mode of intervention. 

Price Intervention: Policies for taxes, Health insurance, or social measures policies. Governments of various countries have framed policies to control COVID-19 issues. Medical health policies covering this disease will ensure proper hospitalization of the patient. 

Regulation Measures: Policies framed concerning labor laws, minimum wages to labor, and other policies that have a wider impact across the country. These regulatory Policies prevent the market from Crisis and Failure. 

Government of the United States and its intervention: In the USA the government is playing the role of significant employer. About one-sixth of the total workforce is employed under Government in different domains. 

The government also revises its policies from time to time. These policies have an immediate impact on the market and influence the economic life of an individual. 

Limitations of Government Intervention 

Economies need to oversee all the Production and allocation in the economy. The regulatory authority of economies' desired objective is to attain the equilibrium position where the maximum satisfaction of all could be achieved. Social welfare is the objective of any socialist and communist type of economies. To achieve optimal production and allocation specific information is required, so intervention enables the regulatory body with that information. Based on this information and as per the relevant policy of economics the strategic planning is being devised by the country having different economic policies. For example – Socialist Economies, Communist Economies, Capitalist Economies, and Mixed Economies. 

Overall the country's role is to bridge the gap between the real state of the market and the desired optimal level of Production and distribution i.e., optimal level or equilibrium position. This level has a great effect on social welfare. 

To prevent the economy from Market Failure, the relevant strategies are adopted by different economies. Also when the market gets trapped in Problem; the role of regulatory bodies comes intending to liberate the market from that issue. 

Market Failure due to externality 

Change in people demands for specific Products plays an important role. Hence companies do engage in research and development to know the actual trend and accordingly make some specific up-gradation in their Product. Companies which do not upgrade its product as per the trends of the market they lost the customer base. And the Government has a limited role in this scenario. There must be healthy competition in the market. Also, an economy invests in public goods. In capitalist economies the market is free and it moves as per prevailing trend and based on demand and Supply. But to check certain measures of economies some guidelines based on relevant theory are advised to the regulatory authority of respective economies. Research pertaining to Public economics gives certain observations that are very crucial and helps the Political economy in devising relevant Policies, rules, and guidelines. 

Market Failure due to Asymmetric Information 

In an economy, the market would collapse if all the information is not passed to all key players. Those who have less information would fail. The majority of the time because of this Market suffers and fails. Also forecasting with respect to a specific sector that is following different trends is analyzed more closely so that the strategy could be developed accordingly. 

For example – The world is witnessing the Problem of COVID-19. Now mandated coverage could prevent huge expenditure on health borne by the individual. It would be better for respective economies if they give some kinds of relaxation in terms of money so that all could be covered. If the economy has not made the insurance coverage people would not go for it and the country would suffer in terms of health. The economies while planning for budget allocation for each sector checks the cost-benefit analysis. It also frames tax policy based on the current market situation and theory of economics. 

Also, some economies provide subsidy in education so they it could have educated youth. This could be part of public expenditure. 

Context and Applications 

The subject of Public Economics has practical relevance as it impacts the daily life of an individual and the markets. The Government tries to attain its end objective by framing macroeconomics policies. It is done to ensure the just social welfare of all and protect the market from failure or crisis because of Externalities and other factors. 

Academic Interests

There have been several disciplines where this module is being taught. Apart from it, there are various sub-fields where the knowledge of public economics is expected and relevant training related to it is being provided from time to time. Companies are investing in research and development to know the trends of the market. There is a good scope of these studies to devise planning and strategy as per Forecasting. The studies concerning public economics would help economies globally. Different academics that cover public economics are labor and corporate Finance, labor Laws, Public administration, Economics, Macroeconomics, Microeconomics, Management, Public Finance. Massachusetts Institute, Harvard, London School of Economics are renowned institutions globally conducting market research for economics. It also provides economists the relevant assumption and trend of the markets which helps them in devising better economic theory that could eliminate disparities among People of the country. 

Public Economics is one of the domains of Economics. Research with respect to economics exclusively public economics has become inevitable today. It is beneficial for students pursuing different Disciplines. These are as: 

• Masters in Public Policy,  
• Masters Human Resources and Labor Relations 
• MBA -HR 
• MBA -Finance 
• Master in Economics & Bachelors in Economics 

For Professionals, engaged in economic research, formulating fiscal policy, and Public Finance, Market Research contributing to Policy framing, the depth of knowledge of Public economics is inevitable. There has been a great scope of research in economics as it is a dynamic subject. The studies of Public economics will help this Professional in making the right decision that would be beneficial for the country in the long run as well as in short term. 

Practice Problem 

How Government Policies affect the economy?  

Solutions: Economies frames Policies with respect to income tax, corporate tax, gift tax, service tax, and others. The increase or decrease in these taxes impact directly to individual and corporate and have a significant effect in their economic life. Taxation is one of the good sources of revenue for a country. Economics helps the policymakers a lot. Tax Policy varies from one country to another. A country's Policies determine the public expenditures. 

The government's objective is to prevent the market from failure and crisis. The goal is to achieve maximum social welfare concerning the economy, promote economic equity. In order to ensure these objective social welfare economies gives priority to those policies that have a significant impact on the large masses. Respective economies also consider the cost-benefit analysis before devising public policy concerning the economy. 

Public Economics plays a pivotal role in maintaining a robust economy and sustainable growth. Today every economy's objective is to have developed not in terms of increase in GDP but terms of increasing standard of living. Public economics has been a growing field and is a dynamic one. Economist across the whole world along with political scientist and political economist has a greater role to play in combating irregularities in Economies.