Forms of government assistance to businesses

One of the roles of government is to assist businesses. In doing so, these businesses will be able to expand and produce more. As they produce more and accumulate a surplus, this excess or surplus can be exported and earn foreign exchange, which will in turn benefit the country as they will be better able to pay for their imports and, perhaps, have a surplus to go towards the economic growth and development of the country. Governments assist in a number of ways.

1. They lend some businesses money/capital. This is especially true if the business is a small one. Government institutions for lending include the Small Business Association of Jamaica, MIDAS (Micro Investment Development Agency) and Jamaica Trade and Invest (formerly JAMPRO). These loans are usually at low rates of interest and, therefore, are cheaper than elsewhere.

2. They are involved in training and technical assistance. For example, they have HEART/Trust NTA and the National Youth Service.

3. Governments set up research and information centres to assist businesses in getting accurate and timely information that may benefit them. For example, the Statistical Institute of Jamaica (STATIN) and the Jamaica Information Service.

4. Governments also give subsidies and grants to businesses, which helps them to cut the costs of production and, ultimately, to produce more. Subsidies can be in the form of money or materials, while a grant is a monetary gift that does not have to be repaid.

5. For businesses that have just been set up, governments may grant tax concessions until they can stand firmly on their own two feet.

The impact of social services provided by government

A large proportion of government revenue is used to provide social services for the country. These social services have a positive impact on the country, in that the welfare or well-being of individuals, families and businesses is improved. Social services are usually granted according to the need, that is, to low-income families and families with persistent difficulties. These services are often regarded as merit goods and result in reducing the inequalities between the rich and the poor. In welfare states such as Sweden, there is no extreme poverty. Let us consider some specific social services and the positive impact that they may have.

(a) Government health care. This results in a larger portion of the population being healthy as a result of general health, dental, optical and medical care. These are provided through government clinics and hospitals. A healthy population means a healthy future labour supply and, ultimately, increased efficiency and increased production.

(b) National insurance scheme. One positive effect is the provision of pensions and security for the elderly. There are also widow’s benefits, funeral grants and assistance given in cases of loss of earnings through illness. All of these benefits help to maintain the standard of living of people and prevent them from falling into a state of poverty.

(c) Education. Government provides public schools and assists them through ministry grants. The result is that a greater portion of the population becomes informed and literate than if education was entirely through private means. More persons will be able to get jobs through being educated and this will reduce the unemployment rate.

(d) Roads and transportation. Improved roads and transportation by government will mean greater access to goods and services. Greater access means greater standard of living for persons on a whole.

Questions:

1. (a) Define the term government. (2 marks)

(b) Outline THREE responsibilities of governments in your economy. (6 marks)

(c) Discuss the functions of THREE government agencies involved in the protection of the environment. (6 marks)

(d) Explain THREE ways in which the government may regulate business activity in your country. (6 marks)

Total marks: 20

2. (a) Distinguish between the terms tax and taxation. (4 marks)

(b) Discuss THREE purposes of taxation (6 marks)

(c) Distinguish between a proportional tax and a regressive tax. (4 marks)

(d) Define direct taxes and indirect taxes. (4 marks)

(e) Give ONE example of EACH type of tax named in (d) above. (2 marks)

Total marks 20

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