Public finance

• Public Finance


  Field of economics concerned with how governments raise money, how that money is spent, and the effects of these activities on the economy and on society
• Public Finance


  Manages revenue, expenditures, and the debt load of a nation with the help of public and quasi-public organizations
• Public finance


  Studies how governments at all levels—national, state, and local—provide the public with desired services and how they secure the financial resources to pay for these services
• In many industrialized countries, spending and taxation by the government form a large portion of the nation's total economic activity
• Total government spending in the Philippines about 4.506 trillion which is equivalent to 21.8% of the GDP larger than by 10% of the FY 2020 budget
• Role of Public Finance


  • Managing public funds
  • Economic development
  • Eliminating inequality
  • Retaining price stability
  • Satisfying the nation's fundamental needs
  • Managing the currency value in the international market
• Php 5.268 Trillion- National budget as signed by President Marcos, Jr. for fiscal year 2023
• The 2023 GAA is 4.9% higher than the FY 2022 Level
• 1. Point Socioeconomic Agenda


  • Food security
  • Improve transportation
  • Affordable and clean energy
  • Health care
  • Social services
  • Education
  • Bureaucratic efficiency
  • Sound fiscal management
• Public goods


  Government-financed items and services such as roads, military forces, lighthouses, and street lights
• Private citizens would not voluntarily pay for these services, and therefore businesses have no incentive to produce them
• Spillovers/Externalities


  Undesirable side effects of a market economy
• Redistribution of income


  Governments collect taxes from their wealthier citizens to provide resources for their needy ones
• Public Spending


  1. National, Provincial, and local governments create a budget to determine how much money they will spend during the upcoming year

  2. The budget determines which public goods to produce, which spillovers to correct, and how much assistance to provide to financially disadvantaged people

  3. The chief administrator of the government proposes the budget

  4. The legislature ultimately must pass the budget
• Government Spending


  • Exhaustive spending
  • Transfer spending
• Exhaustive spending


  Purchases made by a government for the production of public goods
• Transfer spending


  When government transfers income to people to help them support themselves
• Types of transfers


  • Cash transfers
  • In-kind transfers
• Cash transfers


  Cash payments, such as social security checks and welfare payments
• In-kind transfers


  Transfer of goods or services to recipients, e.g. food stamp coupons and Medicare
• Sources of government revenue


  • Fees for services
  • Taxes (income, capital, sales, excise)
• Personal income tax


  Income or payroll tax, imposed on labor or activities that generate income, such as wages or salaries
• Capital tax


  Taxes on items or facilities that generate profits, such as factories, business machinery, and real estate
• Corporate income tax


  A type of capital tax used by the federal government in the United States
• Property tax


  A capital tax used by state and local governments, levied on items such as houses or boats
• Sales tax


  Levied by many state and local governments on the purchase of certain items, paid by consumers as a percentage of the sales price
• Excise tax


  Levied by all levels of government on a specific product, such as alcohol, cigarettes, or gasoline
• Value-added tax (VAT)


  Levied on the value added to a product during production as its components are assembled into final goods
• Government spending increases


  Creates jobs, increases income and spending, and the economy tends to grow
• Government increases taxes


  Households and businesses have less income to spend, they purchase fewer goods, and the economy tends to shrink
• Fiscal policy


  The way the government spends and taxes to influence the performance of the economy
• Government deficit


  When the government spends more than it receives
• Governments finance deficits by borrowing money
• Deficit spending when unemployment is high


  Can be helpful for the economy by creating jobs and expanding the economy
• Deficit spending when unemployment is low


  Can harm the economy by causing rising prices or inflation
• Public Finance


  Deals with the study of income, expenditure, borrowing and financial administration of the government
• Private Finance


  Deals with the study of income, expenditure, borrowing and financial administration of individual or private companies
• Basis for comparison between Public and Private Finance


  • Meaning
  • Adjustments
  • Objective
  • Nature of Budget
  • Financial Transaction
  • Time Horizon
  • Elasticity
  • Transparency
• Public goods


  Goods provided by nature or government for free use by the public
• Private goods


  Goods manufactured and sold by private companies to satisfy consumer needs and wants