ABSTRACT
This chapter explains how state activity in the economy is carried out. Governments have a toolbox of various instruments that they can employ. The most flexible in terms of modulating its scope and impact is its capacity to establish the rules governing economic activity. They also have the power to impose taxes and levies or to provide aid and subsidies. They can also establish incentives for certain agents or reach different kinds of agreements with the private sector. Finally, as a more drastic measure, they can act as a substitute for the market, setting prices or even directly providing goods and services. Any of these measures can be used for different purposes. At the same time, various measures can be used to pursue a specific objective. Economic policies are made up of consistent sets of measures directed at reaching a (generic or specific) goal or to orient a certain economic sector. One possible way to classify economic policies divides them into policies that organize economic activity, policies that promote economic activity, macroeconomic adjustment policies, social policies and sectorial policies. Economic policies must work in harmony taking into consideration that the decision-making capacity can be decentralized.
