Public Finance

Public Finance Definition

Public Finance is the way of managing the public funds in the economy of the country which plays the most important role in the development and growth of the nation both domestically as well as internationally and it also affects every stakeholder of the country whether that stakeholder is a citizen or not.

Explanation

Every country needs money in order to run the nation, the revenue of the country is the collection of various taxes and returns on the investment, and the government expended from the collection of the revenue. Some of the expenditures are healthcare, medical facilities, salaries to the staff, members, etc. All the revenue and expenditure are collected by or for the public. Hence the finance is called as the public finance, where the role of the public is large in terms of contribution. It deals with the revenue and expenditure at every level in which the public is involved, whether the state level or the central level. The management of public finance plays an important role in the development of the economy as the growth of the economy largely depends on its proper utilization.

Objectives of Public Finance

Managing Public Needs

The basic objective is managing the basic needs of the public like food, shelter, health, infrastructure, and education. All this is the responsibility of the government so that the basic public needs and be fulfilled and public and contribute to the development of the economy.

Economic Development

Proper management leads to economic development, which leads to the growth of the nation.

Removes Inequality

It also aims at removing the inequality by proper allocation of resources i.e., providing the relief to the poor by collecting the taxes from the rich class people.

Maintaining Price Stability

It helps in controlling the inflation by various packages and means for the development of the nation at large.

Other objectives

1. Fulfilling the basic needs of the nation
2. Generating employment
3. Maintaining the currency value in the international market.

Types of Public Finance

Following are the different types –

Public Revenue

Public revenue is the collection of money from the public by way of direct and indirect taxes, penalties, fines, fees, maintenance, etc.

Public Expenditure

Public expenditure is the expenditure for the public like infrastructural facilities, basic health facilities, medical and educational facilities, etc.

Public Debt

When the expenditure exceeds the revenue, the government will take the help of debt to fulfill the needs of the country and to run the economy.

Financial Administration

Financial Administration is managing the public finance as well as managing the needs of the government like salaries to the public electives, expenditure on maintenance of public heritage, etc.

Components

Following are the different components –

Collection of Revenue

The basic and utmost important component is the collection of the revenue by taxes, fines, charges, import duty, fees, etc. so as to run the economy.

Public Expenditure

Expenditure involves public expenditure as well as government expenditure. Public expenditure includes the infrastructure and other necessary expenses, and other expenditure includes the expenditure necessary to run the government like salaries, etc.

Preparation of Budgets

The budget is the annual forecast of the revenue and the expenditures so as to analyze the need for the debtor to invest the finance.

Analyzing the need for Debt or Investment

The important component of public finance is to analyze that is there will be a shortage of funds or availability of excess funds and accordingly deploy the funds.

Functions of Public Finance

Following are the functions –

• Management of income and expenditure by optimum utilization of the resources.
• Managing the growth and price stability in the economy.
• Providing the necessary needs and infrastructure to the public.
• Take initiatives for the development of the public, which can contribute to the development of the nation.
• Maintaining the transparency of the policies and the records of income and expenditures.
• Compare the actual position with the budgets and accordingly alter the policies and manage the economy.
• Monitor the functioning and effectiveness of the financial policy.
• Preparing the financial policies for the development of the nation and the economy at large.

Scope

The scope public finance is not just limited to managing the finance, but it also focuses on maintaining the proper infrastructure, contributing towards the national economy, reducing the unemployment, managing the financial pillars of the economy, maintaining the hygiene and cleanness in the nation, analyses of tax collection, ensuring the burden of tax should not be very high, monitoring and enforcing the implementation of the financial and fiscal policy, maintaining the confidence of the public at large, etc.

Managing Public Finance

Management of Income and Expenditure

Public finance largely involves public money; hence management and transparency in the records play the most important role.

Managing Debt and Investments

The role of government is wide as it has to manage the various aspects like managing and repayment of the timely debt as well as managing the assets and the investment by the government to decide the value of holding and benefit from it.

Importance

It carries the utmost importance in the following ways –

• The proper management of public finance ensures the growth of the nation.
• It encourages investment through various policies and packages.
• Preparation, implementation, and change with change in the technology the policies framed by the government for the development of the economy at large.
• It helps to maintain price stability, reduce inflation and unemployment.
• It is also important in terms of allocating natural as well as human resources.

Conclusion

Public Finance is the way of managing the public funds, but it is not only limited to managing the public funds but also managing the other things like price stability, economic growth, issues like inequality of income, unemployment, human rights, etc. Management of public finance is the wider term. It requires proper planning, allocation of resources and controlling the unfavorable situations, etc. by making the financial and fiscal policies, budgets, etc. so as to ensure the growth of the nation at large.

Recommended Articles

This has been a guide to Public Finance and its definition. Here we discuss objectives, scope, components, and functions along with its importance. You may learn more about financing from the following articles –

• Public Infrastructure
• Trade Finance
• Command Economy
• Revenue Expenditure
• International Finance