Government exists in every society to perform a number of functions which are critical to the general well-being of the people. Such functions include:
- Provision of legal framework and a social environment conducive for the effective operation of the price system.
- Creation and maintenance of social and economic infrastructure e.g. roads, bridges, electricity, pipe-borne water, sanitation, etc. They are called public goods or social overheads.
- Redistribution of income e.g. through direct transfer payments or welfare programmes for the vulnerable members of the society.
- Re-allocation of resources.
- Promotion of macroeconomic objectives.