What Is Government and Economics?

Government and Economics is an emerging field within the discipline of economics that examines the behavior of governments in modern market economies and the incentive mechanisms that shape such behavior. Its objective is to provide a systematic analysis of the role of government in contemporary market systems and to inform economic reform through improved incentive design. By more effectively aligning incentives, governments may perform their economic functions more efficiently and promote high-quality development in market economies.

The increasing relevance of Government and Economics reflects a fundamental structural transformation since the Industrial Revolution, during which both the scale and the economic functions of government have expanded substantially. In advanced economies, government expenditure as a share of GDP has risen from approximately 10 percent prior to the Industrial Revolution to around 35 percent today. Moreover, the historical experience of major market economies—including the United States, Germany, Japan, South Korea, and China—demonstrates that governments have played a pivotal role in supporting rapid economic growth during periods of structural transformation and economic takeoff. China’s experience since its reform and opening-up is particularly illustrative of the analytical and practical significance of studying government and economics.

In contrast, much of the existing economic literature either assumes that governments seek to maximize social welfare or models them as purely self-interested actors that inevitably give rise to government failure. Both perspectives overlook a central issue: the importance of designing government incentives in ways that enable governments to effectively support market development and foster high-quality economic growth. This paper articulates three core principles of Government and Economics. First, government is a central actor in modern market economies. Second, government behavior is a key determinant of the quality and trajectory of market economic development. Third, government behavior is fundamentally shaped by incentive mechanisms. We argue that case studies, theoretical analysis, and statistical methods constitute the primary research approaches in this field. Finally, we outline several important research questions aimed at advancing Government and Economics as a coherent and rigorous area of economic inquiry.