Normative Theories of The State:

The economic rationale of the State is explained through specifying different roles of the state from an economic perspective such  as:

(i) Allocative role, (ii) Distributive role, (iii) Stabilization role, (iv) Regulatory role for the state.

Allocative Role:

In a welfare state fiscal responsibility of the government leads towards    maximization of social welfare through the allocation of  public expenditure for the production or provision of socio-economic infrastructure that is the creation of social overhead capital.  It explains three stages:

a) Efficient allocation of resources between the public sector and the private sector in a mixed economy given the resource  constraint.  Samuelson's 'Pure Theory of Public Expenditure' gives a solution based on the General Equilibrium Approach in this context.

b) Determination of the optimum size of the budget based on the principle of Maximum Social Advantage.

c) Fixation of priority on different public goods and services for its production or provision considering public choice through the  translation of individual preferences in terms of collective choice.  In a democratic country where the ruling party depends on the  votes of citizens in the coming election to continue further in power it tries to gain public support by its budgetary policy allocating the available and potential resources of the government for those public goods and services which are conforming to the public choice  satisfying maximum number of the people.

Distributive Role

The responsibility of the government in a state also lies on bringing equity and providing social justice.  Through budgetary policy  there is the need of avoiding disparity between the rich and the poor in a society and also to maintain the balance regional  development.

Stabilization Role

It refers to fine turning of the economy and to strengthen the economic fundamentals of the state.  It conforms to prudent fiscal  policy through fully exploring the possibility of resource mobilization and effective expenditure management in the state.  It talks about fiscal responsibility and budget management by stabilizing deficits, making debt sustainable and achieving maximal growth for  the economy.

Regulatory Role

Formation of economic policies and their effective implementation to fulfill the objectives of the state speaks about better  administration and   effective governance.

Rules, regulation, norms, and guidelines to materialize state's aspiration usually refer to its regulatory role.