5 Government Role in Market Economy It has been long debated whether the government has a role to play in market economy and under what conditions government intervention can be permitted. The traditional response to this question is that governments need to intervene to correct market failures, ensure equitable distribution of income, protect the welfare of citizens in order to increase economic growth. What is government intervention? Government intervention refers to those steps or actions taken by the government to control resource allocation and voluntary market activity. These regulatory steps are usually taken to control decisions made by individuals or organisations that could have a negative impact on economic or social matters. The government intervenes in the market to ensure the social and economic welfare of the people. Some types of government intervention include the imposition of taxes, price controls, and control over government spending.