Role of Government

• Responsibilities of Government in An Economy


  • Security of the State
  • Protection and General Welfare of Citizens
  • Job Security and Severance benefits to workers
  • Protection of the Environment
  • Management of the Economy
  • Maintenance of a Safe Environment for Investors
• Security of the State

  • The country must be protected from outside/foreign forces by the army, coast guard etc.
  • Assistance can also be received from other nations where a country lacks the ability to protect itself
• Protection and General Welfare of Citizens

  • Create and amend laws which would be beneficial and protect the innocent of the society
  • Laws must also be enforced through the courts as well as the police force
  • Provision of social services to safeguard the welfare of the citizens
• Social services provided


  • Education
  • Health services
  • Utilities
  • Proper road network
  • Telecommunication
• Job Security and Severance benefits to workers

  • Legislation through which government workers can be appointed to the government/civil service
  • Labour laws to ensure that workers in both the private and public sectors are not treated unfairly or dismissed without just causes
  • National insurance scheme to provide payment in the event of sickness, injury or severance
• Protection of the Environment

  • Legislation/acts of parliament which would make certain acts such as dumping and other offensive practices illegal
  • Zoning of certain areas which would become national parks or reserves
  • Seminars, lectures and workshops and other awareness material
  • Regular impact studies and statements of the land, air and sea
• Management of the Economy

  • Ensure economic growth and development
  • Improve standard of living
  • Control the country's rate of borrowing
  • Maintain adequate foreign reserves
• Maintenance of a Safe Environment for Investors

  • Ensure political stability
  • Ensure economic growth
  • Control the level of crime
• How can Businesses Protect the Environment (Physical & Economic)

  • Adhere to business laws
  • Comply with labour laws
  • Have a proper working environment
  • Having a good relationship with workers and their trade unions
  • Proper disposal of waste
• Importance of Environmental Protection and Preservation

  • The quality of life is enhanced
  • The flora and fauna is protected
  • Sustainable development
  • Harmony between workers and employers
  • Increased investment
• Measures Used by Government to Protect Consumers

  • Price Controls
  • Encouraging/endorsing consumer protection agencies
  • Consumer Protection Legislation
• Price Controls

  • Setting a price ceiling on goods so that all persons can purchase certain products, especially necessities
  • Keeps suppliers from charging excessive prices
• Consumer Protection Legislation

  • Food and Drug Standards
  • Hire-purchase legislation
  • Health and Safety Standards
  • Laws relating to the sale of goods, looking at quality, labelling, weights and measurements, guarantees
• Government Regulatory Control on Businesses

  • Legislation
  • Regulation
  • Taxation
  • Subsidies & Price Controls
  • Provision of training for workers
  • Factory Space/Low Cost Rent
• Legislation


  • Acts of parliament can cover such issues as, laws relating to zoning, disposal of waste etc.
• Regulation


  • Regulations have to be followed when setting up businesses e.g. filing with registrar of companies, memorandum and articles of association governing the internal and external operation of businesses which have been incorporated
• Taxation


  • Governments may offer reduction in taxes or tax holidays to encourage businesses to set up in the country or specific area
• Subsidies & Price Controls

  • Subsidies assist producers to purchase products at cheaper prices
  • Price controls are used on goods which the government feels should be available to all in society at a reasonable price
• Provision of training for workers

  • Can help to improve the productivity of businesses as workers are taught how to perform their jobs more efficiently
  • Can lead to greater profitability and expansion of operations
• Factory Space/Low Cost Rent

  • Government offers these incentives in an effort to reduce the overall cost of production of business
  • To keep the cost of the final products at a reasonable level to consumers
  • Often used to help struggling local industries or to attract foreign investment
• Social Services Provided by Government

  • Educational Facilities
  • Health Facilities
  • National Insurance
  • Infrastructure
• Educational Facilities


  • Includes pre-school, primary, secondary and tertiary institutions, training boards
  • Encourages the improvement of skills as well as entrepreneurship
• Health Facilities


  • Hospitals, polyclinics, homes for the elderly (geriatric homes)
  • Healthier citizens
  • Longer life
  • Reduction in diseases
  • Reduction in death rate
• National Insurance


  • Unemployment benefits
  • Death benefit
  • Maternity leave and benefit
  • Disability benefit
• Infrastructure


  • Provision of roads, running water, electricity, telecommunications
  • Improves the standard of living of citizens
  • Encourages investment from business
  • Greater access to goods and services
• Taxation


  The compulsory payment made by citizens and corporations to the government, for which no direct benefit is given in return
• Direct Taxes

  • Income tax
  • Corporate tax
  • Capital transfer and estate duties
• Indirect Taxes


  • VAT
  • Sales Tax
  • Customs duties
• Role of Taxation


  • Raising Revenue
  • Income Redistribution
  • Control of Spending
  • To Protect Local Industries
• Negative Effects of Taxation

  • Taxes such as VAT can raise prices creating higher inflation
  • Taxes can lead to a poverty trap
• Progressive Taxation


  The higher the tax payer's income, the higher the absolute amount of tax paid as well as the proportion of income
• Regressive Taxation

  As a person's income increases, the percentage of tax paid will decrease
• Proportional Taxation

  All taxpayers pay the same proportion of his income in tax
• In 2004 and 2005, Paul's income was $3000 and $6000 respectively. Below is a table showing the various tax brackets for the years.
• TAX BRACKET

  RATE OF TAX

  The first $1000

  0 %

  The next 2,500

  10%

  The next $2000

  15%

  The next $1000

  25%
• Show all working