Public Policy: An Overview

Abstract

Understanding the role of the government in a market economy is important for proper dialogue between citizens and policymakers in a democratic governance system. Even though the topic is not novel, the management of economies in developing nations shows that basic economic principles are sometimes ignored. In this context, revisiting the subject of public policy, particularly the role of the government in a market economy, is pertinent. This chapter defines and describes what public policy is and policy instruments available to a government; summarises the theory and empirical evidence on markets’ ability to allocate resources efficiently and improve social welfare; and, describes the government’s role, within principles of minimum intervention, in creating inclusive economic institutions, maintaining equitable distribution of income, correcting market failures, and ensuring macroeconomic stability.