Government policy is the set of rules a government makes to govern itself and its citizens. It covers everything from defining taxes to enforcing laws. Governments need to make sure their policies are informed by the best evidence, which can be done by consulting experts and using independent data analysis. A policy is only valid if it addresses an important problem and provides a feasible solution. A policy is also only sustainable if it has the support of the public.
The first step in creating a policy is identifying the problem and presenting it to the public. This can be done through debates, referendums, and other means. The next step is to identify a solution and argue for it. A policy is only implemented when it has been approved and endorsed by the relevant bodies or institutions. It is then enforced, evaluated and maintained.
In economic terms, the main function of government is to allocate resources efficiently. This involves establishing budgets, taxing and spending in ways that promote growth and manage inflation and unemployment. It also provides public goods and services like defence, infrastructure development and education. These are essential because they are non-excludable (anyone can consume them) and non-rivalrous (consumption does not reduce the amount available for others).
It is also responsible for providing welfare benefits, including unemployment, health and housing subsidies. In addition, it sets taxes and provides incentives to encourage businesses to invest in specific areas. It can also regulate the economy by implementing monetary policy and stabilizing it.