Abstract

In this paper we address the following four questions: is it reasonably correct to assume that the government is benevolent and competent? Has state intervention through taxation and transfers negative effects on individual incentives? In a context of limited information, are political failures or market failures more relevant? Which macroeconomic model is more useful for policy analysis? We tackle the above issues by surveying and discussing the main contributions in the literature on the above topics and we draw some lessons on the appropriate role of public intervention in the economy.