Public Finance - 1

• Public Finance


  Concerned with the expenditure and revenue of the government
• Private Finance


  Concerned with the expenditure and revenue of individuals and business firms
• Public Finance


  • Public Debt
  • Taxation
  • Public Spending
  • Monetary Policy
• Private Finance


  • Mortgage and other loans
  • Insurance
  • Stock Market Investment
  • Personal Savings and Investments
• The objective of both public and private finance is satisfying human wants
• The principles of both public and private finance are maximum benefits and satisfaction
• Both public and private finance deal with income, expenditure, and borrowing
• The policies of both public and private finance aim to maximize welfare
• Efficiency is key in the administration of both public and private finance
• Differences between public and private finance

  • Budget nature - deficit vs. surplus
  • Objectives - social welfare vs. profit
  • Elasticity
  • Financial transactions - open vs. secret
  • Revenue sources
  • Expenditure determination
  • Economic impact
  • Credit status
• Fiscal Functions: Allocation


  The process of allocating resources between private and social goods and selecting the mixture of social goods
• Fiscal Functions: Distribution


  The modification of the income and wealth distribution to ensure adherence to the standards of what society views as a "fair" or "just" state of distribution
• Fiscal Functions: Stabilization


  Fiscal policy plays a crucial role in stabilizing the economy to achieve full employment and price stability
• Differences between public and private sector

  • Ownership
  • Objectives
  • Accountability
  • Access to capital
  • Decision-making
  • Employment
  • Competition
  • Examples
• The public and private sectors sometimes work together for common interests
• Both the public and private sector have a role to play
• The private sector is efficient and better at job creation
• The private sector needs a good public sector to provide education, healthcare and infrastructure investment
• Public-Private partnerships can be used to finance, build, and operate projects such as public transportation networks, parks, and convention centers
• Areas of interaction between public and private sector


  • Infrastructure Development
  • Healthcare Facilities
  • Education Sector
• Government revenue comes from taxes and non-tax sources
• Taxes


  Monetary impositions for government benefits like security, roads, and basic amenities
• Non-tax sources


  Fees and penalties for important documents like licenses, certificates, etc.
• Government spending


  Spending on collective needs including pension, security, infrastructure, healthcare, and social services, as well as government employees' salaries
• Public Debt


  Amounts owed by the different levels of government and used to finance public deficits resulting from a higher level of program spending to budgeted income
• Economic Effects of Public Debt


  • Effect on consumption
  • Effect on distribution
  • Effect on production
• Financial Administration


  A critically important facet of public administration which operates through the instrument of the budget and encompasses the entire budgetary cycle
• Economic Stability


  A situation where all the essential economic resources of a country are available to its citizens, and no economic swings interrupt their daily lives
• Indicators of Economic Stability

  • Consistent real GDP growth
  • Low unemployment
  • High personal income levels
• Economic Growth


  An increase in the production of economic goods and services in one period of time compared with a previous period
• Factors of Economic Growth

  • Land
  • Labor
  • Capital
  • Entrepreneurship
• Major Sources of Government Funds

  • Taxes on income and profits
  • Taxes on property
  • Taxes on domestic goods and service
  • Taxes on international trade and transactions
  • Other sources, collections from the motor vehicles tax, immigration tax and forest charges
• Non-Tax Revenue of the Government

  All other collections of the government in exchange for services rendered, assets conveyed, penalties imposed, etc.
• Economic Effects of Public Debt


  • Effect on Consumption
  • Effect on Distribution
  • Effect on Production
• Effect on Distribution


  • Rich to poor gap
  • Burden to future generation
• Effect on Production


  • Waste of resources
  • Holding back innovation