The focus of this thesis is on how the government can optimally allocate the resources available in an economy. Chapter 2 studies how the efficiency of government activities depends on the allocation of labor resources by the government among different agencies. In many countries, the process of obtaining government approval for different projects involves interaction with multiple government agencies at various levels. This often makes the approval process inefficient by unnecessary lengthening it. In this chapter we study the effect of a re-organization of the approval process towards making it a single window clearance system, on the efficiency of the entire process. Government intervention in education, typically in the form of education subsidies, is ubiquitous. In Chapter 3, the rationale behind such an intervention in education is studied in the presence of consumption externalities. The standard rationale for such intervention is a human capital externality. This chapter argues for government intervention in education even when no human capital externalities are present. Finally, Chapter 4 investigates how an economy with production shock behaves in the long run under the presence of government subsidy in education which is made available through a generational transfer mechanism where tax is collected from the working class and passed on to the new generation. The final good production is subject to a period wise shock. In this stochastic framework we define a balanced growth path in which the ratio of physical to human capital stocks converges. The conditions under which this invariant measure exists and is unique are completely specified. This steady state has been compared with a steady state of an economy where a perfect capital market exists to provide funds for education.