1. Meaning & Scope of Public Finance

2. WHAT IS PUBLIC FINANCE?
Public finance is the management of a country’s revenue, expenditures, and debt load through various government and quasi-government institutions. This guide provides an overview of how public finances are managed, what the various components of public finance are, and how to easily understand what all the numbers mean. A country’s financial position can be evaluated in much the same way as a business’ financial statements.
Prof. Dalton in his book Principles of Public Finance states that “Public Finance is concerned with income and expenditure of public authorities and with the adjustment of one to the other”

3. THE SCOPE OF PUBLIC FINANCE
PUBLIC INCOME
PUBLIC EXPENDITURE
PUBLIC DEBT
FINANCIAL ADMINISTRATION

4. PUBLIC INCOME
Public income refers to the income of the government. The government earns income in two ways – tax income and non-tax income. Tax income is easy to recognize, it’s the tax paid by people of the country in the form of income tax, sales tax, duties, etc. On the other hand non-tax income includes interest income from lending money to other countries, rent & income from government properties, donations from world organizations, etc.

5. PUBLIC EXPENDITURE
Public expenditure is the money spent by government entities. Logically, the government is going to spend money on infrastructure, defense, education, healthcare, etc. for the growth and welfare of the country.

6. PUBLIC DEBT
When public expenditure exceeds public income, the gap is filled by borrowing money from the public, or from other countries or world organizations such as The World Bank. These borrowed funds are public debt.

7. FINANCIAL ADMINISTRATION
As the name suggests this area of public finance is all about the administration of all public finance i.e. public income, public expenditure, and public debt. Financial administration includes preparation, passing, and implementation of government budget and various government policies. It also studies the policy impact on the social-economic environment, inter-governmental relationships, foreign relationships, etc.

8. Objectives: Managing Public Needs Economic Development
Removes Inequality
Maintaining Price Stability
Other Objectives
Fulfilling the basic needs of the nation.
Generating employment.
Maintaining the currency value in the international market.

9. SCOPE OF PUBLIC FINANCE
The Allocation Function
The Distribution Function
The Stabilization Function

10. 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 people, which can contribute to the nation’s development.
Maintaining the transparency of the policies and the records of income and expenditures.

11. 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 economic policies for the nation’s development and the economy.

12. THE ALLOCATION FUNCTION
There are two types of goods in an economy – private goods and public goods. Private goods have a kind of exclusivity to themselves. Only those who pay for these goods can get the benefit of such goods, for example – a car. In contrast, public goods are non-exclusive. Everyone, regardless of paying or not, can benefit from public goods, for example – a road.
The allocation function deals with the allocation of such public goods. The government has to perform various functions such as maintaining law and order, defense against foreign attacks, providing healthcare and education, building infrastructure, etc. The list is endless. The performance of these functions requires large scale expenditure, and it is important to allocate the expenditure efficiently. The allocation function studies how to allocate public expenditure most efficiently to reap maximum benefits with the available public wealth.

13. THE DISTRIBUTION FUNCTION
There are large disparities of income and wealth in every country in the world. These income inequalities plague society and increase the crime rate of the country. The distribution function of public finance is to lessen these inequalities as much as possible through redistribution of income and wealth.
A tax-transfer scheme or using progressive taxing, i.e. in simpler words charging higher tax from the rich and giving subsidies to the low-income
Progressive taxes can be used to finance public services such as affordable housing, health care, etc.
A higher tax can be applied to luxury goods or goods that are purchased by the high-income group, for example, higher taxes on luxury cars

14. THE STABILIZATION FUNCTION
Every economy goes through periods of booms and depression. It’s the most normal and common business cycles that lead to this scenario. However, these periods cause instability in the economy. The objective of the stabilization function is to eliminate or at least reduce these business fluctuations and its impact on the economy. Policies such as deficit budgeting during the time of depression and surplus budgeting during the time of boom helps achieve the required economic stability.

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

16. Public Finance and Private Finance: Similarities and Dissimilarities
Same Welfare Objective: Both kinds of finances have broadly the same objective. Private finance is concerned with the maximization of individual welfare while public finance is concerned with the maximization of a community’s welfare from given resources.
Rationality: All kinds of finances are based on rationality. A rational individual tries to maximize his personal gain by allocating his given income. Likewise, the government also behaves rationally in the sense that it seeks to maximize society’s welfare from the expenditures made in different activities

17. Scarcity of Resources: Both have limited resources at their disposal
Scarcity of Resources: Both have limited resources at their disposal. Both public and private individuals are required to match their income and expenditures in such a way that both make the optimum use of resources which are scarce.
Loans are Repayable: Both private and public loans are required to be repaid. An individual borrows money from various sources to meet personal requirements. But that too cannot be unlimited. He has to repay his loans. Like individuals, government cannot live beyond its means. It can temporarily postpone repayment of loans, but it is obligatory to repay the loans.

18. Differences between Public and Private Finance
 Income and Expenditure Adjustment in Public and Private Finance
Borrowing in Public vs. Private Finance
Currency ownership in Public vs. Private Finance
Present vs. future Income
Objective Difference in Public and Private Finance
Coercion to Get Revenue

19. Ability to Make Huge and Deliberate Changes
 Surplus Budget Concept
Public Finance is Transparent: