Summary |
The proper role of government provides a starting point for the analysis of public finance. In theory, under certain circumstances private markets will allocate goods and services among individuals efficiently in the sense that no waste occurs and that individual taste are matching with the economic productive abilities. If private markets able to provide efficient outcomes and if the distribution of income were socially acceptable, then there would be little or no space for government. In many cases, however, conditions for private market efficiency are violated. For example, if many people can enjoy the same good at the same time(non rival, non excludable consumption), then private markets may supply too little of that good. National defense is one example of non-rival consumption, or of a public good.
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