A Government’s Economic Transactions

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A government collects, borrows and spends large sums of money and is thus a major actor in an economic system.  The scope of government spending (3.2.3) – which includes welfare, publicly funded services and the provision of infrastructure – and the taxes with which it funds that spending (3.2.4), affect the lives of the entire population.  It is therefore a fiercely contested political matter (6.7.1).  In many countries it is considered so important that the government is not given a free hand, and its spending decisions are exposed to the scrutiny of the legislature (5.1.3).

As an actor in the economy, a government is a major employer – so it is directly creating wealth for its employees.  It is also a buyer of goods and services, so its suppliers benefit from its spending programmes.  Government spending is so large that it affects the health of the whole economy, so its decisions are subject to what are referred to as macroeconomic considerations (3.3.8).

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