A government is the institution through which a group of people exercise authority to make laws and enforce them. Governments provide leadership, maintain order, and manage the economy. Governments also have the ability to redistribute wealth. Governments are also essential to market economies in that they help people organize to produce and exchange goods and services. They provide institutions such as property rights, contracts, standards for weights and measures, and liability rules that facilitate wealth-producing voluntary exchange. Governments can take many forms, ranging from monarchies to totalitarian states and democracies to republics and federations.

A key function of a government is to prevent tyranny and dictatorship, to protect its citizens from invasions and terrorism, and to ensure the security of its borders and its citizens within. To do this, it needs to be able to control the use of force and to keep people from rebelling against it. A government also must create and maintain a legal system, a police force, and an army. In addition, it must be able to collect taxes and provide welfare programs for its citizens.

In a democracy, the government is accountable to its constituents through elected representatives. This form of government provides the best opportunity for citizens to have a say in public policy and to hold its leaders accountable. Governments that are too autocratic or tyrannical will struggle to survive.

The role of governments has changed over the years, and the types of institutions that exist vary by country. However, the basic functions remain the same. Governments are responsible for making laws and ensuring that they are enforced, and they must provide social services and economic security. They are also responsible for managing externalities and addressing market failures.

There is a role for government in the market economy whenever the benefits of its policies outweigh their costs. Governments can do this by providing for national defense, addressing environmental concerns, and regulating markets to improve competitiveness. Governments can also redistribute income by collecting taxes and borrowing from the public. Governments can provide a variety of public goods and services, such as education, healthcare, and infrastructure.

The problem with a government pursuing these roles is that they may be disproportionately beneficial to certain groups of people, such as special interest groups and lobbyists, while being unrewarding for ordinary citizens. This is a result of the fact that politicians and other officials have an incentive to be especially attentive to those groups that are most likely to vote for them, or to fund their campaigns. This problem is explained by public choice theory. It is therefore important to set limits on the activities of a government in order to limit its negative impact on society. Otherwise, the costs and benefits of governmental activity will be concentrated and unevenly distributed. This is a significant risk that must be taken into account when considering how to create and implement public policy. A good place to start is by analyzing whether the marginal cost of government action is greater than the marginal benefit.