1. Overview of Public Fiscal Administration
Good evening everyone. This evening, I am going to brief on
Reported by John C.T. Ko
July 1st, 2005

2. Outline of the Presentation
1. Definition of Public Fiscal Adm.
2. The Analytical Framework
3. Developing Country Perspective
4. Coverage
This presentation will be composed of 4 parts which are: 接著照幻燈片唸。

3. Definitions  What is Public Fiscal Administration?
Public fiscal administration generally refers to the formulation, implementation & evaluation of policies & decisions on :
taxation & revenue administration;
resource allocation, budgeting & public expenditure;
public borrowing & debt management;
accounting & auditing. 
Public fiscal administration generally refers to the formulation, implementation & evaluation of policies & decisions on taxation and revenue administration; resource allocation, budgeting & public expenditure; public borrowing & debt management; and accounting and auditing.

4. Differences of PFA between LDCs and DCs
Goals & Objectives – Development is the ultimate goal for LDCs;
Social-Economic relationship – Levels of economic development, historical experience, the scars & traumas of colonization, & politico-economic relationships maintained by LDCs.
What are the differences of public fiscal administration between Less developed countries and developed countries?

5. 2. The Analytical Framework Centrally Planned Economies
The “Mixed” Economy
Free
Enterprise
Centrally Planned Economies
Mixed Economy
Public Fiscal Administration normally should be addressed separately with free enterprise and centrally planned economies. Free enterprise economy is characterized by perfect competition in the market. That means the market mechanism is allowed to operate freely in the operation of the price system. However, nowadays, the government intervention is necessary in running the economy. So the mixed economy refers to the combination of a market system intervened by government regulation. This is so called “capitalist economy”.

6. 3. The Developing Country Perspective
Development strategies which worked for industrialized countries may not necessarily transplant to LDCs.
Successful fiscal policies in industrialized countries could result in disaster in LDCs.
Development strategies which worked for industrialized countries may not necessarily transplant to LDCs. The strategies and techniques should be tailor-made to specific conditions of LDCs. Successful fiscal policies in industrialized countries could result in disaster in LDCs.

7. Philippine Case The trend of fiscal policies Deficit financing
Expanded expenditures for
large-scale projects
Traditional “balanced Budget”
Increased public borrowings
Aggressive taxation & revenue adm.

8. 4. Coverage Major activities in public fiscal administration:
Fiscal policy formulation;
Taxation and revenue administration;
Budgeting and expenditure;
Public borrowings and debt management;
Accounting and auditing.
Major activities in public fiscal administration:
Fiscal policy formulation;
Taxation and revenue administration;
Budgeting and expenditure;
Public borrowings and debt management;
Accounting and auditing.
These activities are not necessarily successive in order. In most instances, these are undertaken simultaneously and in close coordination.

9. National Palace Museum,
Taipei, Taiwan
This photo shows the National Palace Museum in Taipei.
Thank you!

10. The Development of Public Finance Institutions
Reported by John C.T. Ko
July 8, 2005

11. Outline of the Presentation
Introduction
The Breakdown of Feudalism
Capitalism
The Crisis of Capitalism
The Marxist Challenge
Impact of Western Public Finance
Institutions
This presentation will be composed of 6 parts which are:

12. I. Introduction Early Public Finance
Ancient Finance: The Slave Societies
Medieval Public Finance: Feudalism
Public finance raises and spends revenues for the functions of the state.

13. Stages of Development of Western Society
Primitive Societies
Slave States
Feudal Systems
Capitalist
Under the primitive societies, there was not much public finance to speak of. The primitive societies were on a survival basis only. What did people hunt or fish was immediately consumed.
Then fights over territories or tribes, the captives became slaves, and the societies moved on to slave societies.
The early public finance institutions of these slave societies served as foundations for modern institutions and practices. Ancient public finance provided some of the basic instruments of public financial management, i.e., budget and expenditures, tax and revenue administration, debt and borrowings.
Medieval public finance further refined these concepts. It also introduced some basic tools like accounting and auditing.
Capitalist
Socialist

14. Objectives of Public Finance
The beginnings of public finance started from the creation of the states which were created to protect the welfare of man.
The state was composed of: the government, the people, territory, and sovereignty.
Public finance was supposed to finance the activities of government.
The following briefing will go to the details of the development of western public finance institutions.
Such institutions can still be recognized in the public finance structures of LDCs at present.
This is why it is important to understand their origin, and those theories had the greatest impact on LDCs with mixed economies such as the Philippines.

15. A. Ancient Finance 1. Expenditures; 2. Revenues; 3. Budgeting;
The Slave Societies
1. Expenditures;
2. Revenues;
3. Budgeting;
4. Borrowings;
5. Auditing.

16. A. Ancient Finance Expenditures on: The Slave Societies
Defense and aggression against outside;
Internal peace and order;
Maintenance of a state religion;
Maintenance of the king & his household;
Public works (tombs- pyramids, Taj Mahal);
Miscellaneous: goods distribution, education..
Ancient public finance was used for the activities of the state, those activities included:

17. A. Ancient Finance Revenues from: The Slave Societies
Lootings and tributes from conquered peoples;
War chests (money);
Fines;
Direct taxes imposed on non-citizens;
Donations or gifts from wealthy citizens;
Production of agriculture and mines.
To finance the public functions, the State had to impose and collect revenues.
The sources of revenue were from: 1.
Ancients governments had little need for direct taxes since they levied tributes on conquered peoples.
Ancient Greece did not levy taxed on its citizens without consent of the people, except the emergency cases like calamities.

18. A. Ancient Finance Features of Budgeting: The Slave Societies
Budgeting was needed to allocate public revenues for specific purposes or functions.
The public budget was merged with the king’s purse, there was no distinction between the public and the king’s private expenditures.

19. A. Ancient Finance Borrowings: The Slave Societies
Public borrowings and debt management were unheard of.
The ancient state was almost self-sufficient and public expenditures were borne by the citizens and non-citizens without asking for loans.

20. A. Ancient Finance Auditing: The Slave Societies
The principle of independent state audit was accepted in ancient Greek states.
The audit was primarily concerned with the maintenance and inspection of financial records.
Ancient audit activities were performed by executive-judicial branch like Ombudsman.

21. A. Ancient Finance  Summary:
The Slave Societies
Summary:
Public finance in ancient time was still limited in scope and activity. This was because the functions of the slave state were limited to some basic activities only. Especially war expenditures got the lion’s share of state financing. 

22. B. Medieval Public Finance
Feudalism (395A.D.-1500)
Origin of “Feudalism”:
During Middle Ages, the weakening of the monarchy (central authority) resulted in the system of feudalism which had the most significant impact on medieval public finance.
What is “Feudalism”:
Feudalism was the system of economic relationship based on land tenure among the king, the lords, and the vassals.

23. B. Medieval Public Finance
Feudalism (395A.D.-1500)
Features:
Due to rising expenditures of defense & management limitation, the king was forced to grant lands (fiefs) to his nobles in return for revenues (aids or contributions).
This was a diminution of the king’s revenue powers over the whole territory. Government functions & public finance were decentralized.
Public borrowings were quite limited because of uncertain tenure of the king.

24. B. Medieval Public Finance
Feudalism (395A.D.-1500)
Summary:
Public finance in Middle Ages: Revenue raising and expenditures were at 2 levels - the king (central government) and the feudal lords.
Economy centered on land: Most taxes were imposed on land-based activities.
Taxation emerged as the major source of public revenue.

25. II. The Breakdown of Feudalism Beginnings of Capitalism
The Rise of Central Government
Beginnings of Capitalism
1. Mercantilism
2. Cameralism
3. Physiocracy

26. A. The Rise of Central Government Post-feudal era (1300-1500)
The growing cost of government forced the post-feudal states to raise more revenues. The return of revenue powers to central government led to the expansion of traditional taxes and the introduction of new taxes.
Most taxes followed old system but with expansion in scope and form. New taxes introduced due to changing conditions, e.g. poll tax, salt tax, window tax, income tax, sales tax, hearth tax etc.
Then, French revolution (1789) provided a relief from the king’s extravagance, feudal system phased out, and adequate national finance system was instituted. Accounting and audit institutions developed.

27. B. Beginnings of Capitalism
Since 15th century, the feudal system was gradually shattered by a rising tide of individualism.
Factories were built, technology advances appeared, trade increased, goods and services expanded. A strong central government forged.
During that time, to make a nation-state strong became economic concerns. Three schools of thought were evolved:
- Mercantilism, Cameralism and Physiocracy.

28. B. Beginnings of Capitalism
Mercantilism 
What is “Mercantilism”?
Mercantilism refers to those protectionist and monetary policies which European states pursued during 16th to 18th centuries in their efforts “to enrich a great nation by trade and manufactures than by the improvement and cultivation of land.”
Mercantilism has been expanded to embrace all the economic policies of the period between the end of Middle Ages and the emergence of laissez-faire and capitalism.

29. B. Beginnings of Capitalism
Mercantilism 
Mercantilism’s Influences on Public Finance
It highlighted the necessity of state intervention in the economy of the mercantilist country.
It expanded the use of fiscal instruments (tax, budget) to guide economic activities towards prosperity.
The concern of the mercantile state to preserve and increase its wealth by active export and corresponding restriction on imports through high tariffs.
It showed the real economic prosperity of a nation laid on development of agriculture and industry, not on acquisition of gold only.

30. B. Beginnings of Capitalism
Cameralism
What is “Cameralism”?
Like mercantilism, it was concerned with how to make the State powerful and wealthy. However, unlike the mercantilists who equally emphasized the accumulation of wealth through restrictive trade, cameralists advocated efficient administration and control of economic activities to develop a nation’s resources.
Cameralists encouraged the use of public finance institutions like taxation to create a prosperous economy.

31. B. Beginnings of Capitalism
Physiocracy
What is “Physiocracy”?
Physiocrats agreed that the only way to institute a stable system of taxation was to base it on a sector which produced a net profit or surplus.
2. To ensure the certainty of revenues, they argued all taxes should be abolished and a single direct tax on the land-rent income generated from agricultural production be instituted.
3. To them, the agricultural surplus was the best foundation for a lasting system of taxation.
Agriculture

32. III. Capitalism Changes Public Finance & Free Enterprise
Industrial transactions
Land-based transactions
Capitalist & the worker
Feudal lord
& the tenant
The development of capitalism had been gradually built up with the decline of feudalism. It was accelerated by the industrial revolution. Economic relationships changed from the land-based transactions to industrial relationships; from the relationship of the feudal lord and the tenant, to that of the capitalist and the worker. The mercantilist philosophy of government intervention gave way to the laissez-faire policy of minimum government interference.
Under the philosophy of free enterprise, it advocated that government services should be limited to the basics.
Laissez-faire policy
Mercantilist Philosophy

33. Public Finance & Free Enterprise
Capitalism
Public Finance & Free Enterprise
1. Adam Smith
2. David Ricardo
3. John Stuart Mill
4. Adolf Wagner
Classical economists
During the era of capitalism, classical economics were prevailing in both the industrialized countries and LDCs. There were four important economists who are Adam Smith, David Ricardo, John Mill and Adolf Wagner. These four economists were so-called “Classical economists”.

34. 1. Adam Smith ( )
He was the initiator of “Classical economics”.
He advocated the policy of minimum government control on business activities (laissez-faire) Regulations reduced wealth.
He advised against large scale borrowing and deficit spending. He promoted the idea of a balanced budget.
Government should limit its expenditures; while private sector should provide the needs of society through the market mechanism. 

35. 2. David Ricardo ( )
He was credited for his theory of distribution of tax burden.
His concepts became one of the bases for the institution of equality and uniformity in modern taxation and the progressive tax structure.
His analysis of public credit led to an expanded view of the use of public borrowings.

36. 3. Adolf Wagner ( )
He emphasized that the state should eliminate the inequalities of wealth through fiscal measures.
The use of fiscal policies for distributive goals in modern times partly originated from his theory.

37. 4. John Stuart Mill ( )
A laissez-faire advocate, he contributed to public finance from his correlation of the functions of the state to public expenditures.
He justified government intervention as in public expenditures for the welfare of the state.

38. IV. The Crisis of Capitalism Keynesian Public Finance
John Maynard Keynes ( )
On public finance, he insisted that government could and should intervene the economic activities. He developed the concept of fiscal policy as a tool for correcting imbalances in the economy.
He encouraged deficit financing. Public borrowings could fulfill economic objectives, and stimulate the economic development.
He introduced the concept of government fiscal management within the context of capitalism.
The concept of mixed economies served as basic tool in both industrialized or developing countries.
Due to the economic depression of the 1930’s, the views of classical economists were changed. People realized that economies under the capitalist or free enterprise system were subject to fluctuation cycle.
In 1936, the economist John Keynes demolished the classical economics.

39. V. The Marxist Challenge Socialist Public Finance
Exploitation of working class
Fierce competition
Giant monopolies
War over markets & resources
Negative
Phenomena
of Capitalism
Communism emerged
(Karl Marx)

40. Marxism (Karl Marx, )
Labor was the key instrument of productive capacity.
Marx claimed that capitalist exploited the working class by trying to get the largest possible amount of “surplus value”. Thus, conflict engendered between the working and capitalist classes.
The main force of revolution was the working class. He believed that capitalism, as it had succeeded feudalism, would likewise be replaced by a communion system.
Marx raised the ideology conflict between the working and the capitalist classes during that specific times.

41. of Socialist Public Finance
Basic Features
of Socialist Public Finance
The Primacy of Central Planning: Planning plays a crucial role in socialist public finance, while classical capitalist theory relies on market mechanism. Since there is only one sector in socialism –the state sector- so central planning is feasible. That is why socialist economies are named as Centrally Planned Economies.
Minor Role of Taxation in Revenue-Raising: Unlike the mixed economies where taxation accounts for most of government revenue, taxation plays a very minor role in socialist public finance. Revenue of state came mostly from state enterprises.
No Budget Deficits: Socialist countries do not have deficits but have surpluses of revenue over expenditure.

42. VI. The Impact of Public Western Finance Institutions on LDCs
Classical Public Finance
Keynesian Public Finance
Will the LDCs follow the various stages of development of the industrialized Countries?

43. Classical Public Finance on LDCs
Adam Smith’s ideas are still quoted in the LDCs.
Smith’s progressive taxation is enshrined in the Philippine Constitution.
Smith’s views on the balanced budget were upheld in the Philippines until 1972.

44. Keynesian Public Finance on LDCs
John Keynes had the most impact on public finance practices of LDCs. Keynesian economics was widely accepted when LDCs regained their independence.
Keynes’ view that government should play a dominant role in running economy was reechoed by LDC fiscal policy makers.
His concepts of deficit financing & borrowing gave standpoint to the need of borrowing & budget unbalance towards “development”.

45. Will the LDCs follow the various stages of development of the industrialized countries?
The answer to the question is Why?
The financial system of the industrialized countries was for their own benefit, not for LDCs.
The industrialized countries are the beneficiaries of colonialism, the LDCs are their victims.
The Philippines as example, after 400 years of rule by Spain, four decades by the U.S. and five years by Japan, Philippine vast resources and wealth were transferred to the colonizing country. Such transfer was facilitated by colonial finance.

46. Grand Hotel, Taipei, Taiwan
Thank you!