There are a number of methods that governments can use to correct market failure in order to improve the allocation of society’s scarce resources. Traditionally, different political parties would have differing views about the extent and forms of any intervention in markets. A Labour government would typically be viewed as favouring more state intervention than a Conservative government, perhaps aiming to reduce inequality by taxing higher earners and redistributing this revenue to the lowest-income households. They may also wish to impose windfall taxes on rich corporations or discontinue tax breaks for private schools. However, the previous Conservative government was not averse to using indirect taxation, such as their introduction of a tax on sugary drinks, implemented in 2018.
In this article we will consider whether government intervention to solve problems in certain markets always leads to an improvement in society’s overall welfare. Could government intervention sometimes make things worse, or create entirely new problems? If so, we would say that there has been government failure. An example essay question on this topic might be:
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