Public Sector Activities

Abstract

The previous chapter has dealt with taxation and general government expenditure — i.e. with the financing of ‘public goods’ (defence, public administration, etc.) — so this chapter will confine itself to the remaining activities of the public sector. ‘Public goods’ are provided for the community as a whole, are indivisible, and cannot therefore be charged to individual users in proportion to their use. But in many countries the state also supplies goods and services which can be allocated to individual consumers, in which case the price the state charges for its activities can be a major source of finance, as well as a powerful instrument of government control over income distribution, sectoral balance, market structure, etc. Sometimes the prices charged by the public sector for its activities involve a tax element (e.g. individual ‘purshasers’ of social security benefits may be unable to escape payment if they decide the service costs them too much), but the fact that the state incurs a specific obligation to a particular customer, in exchange for his payment, differentiates this type of public sector transaction from general taxation. This chapter examines public enterprises and social security funds to see how their pricing policies contribute to financing development. It concludes by considering how public development banks raise loans on behalf of public enterprises.