BY Neerja Sharma

 Public finance is the study of the role of the
government in the economy. It is the branch
of economics that assesses the government
revenue and government expenditure of the
public authorities and the adjustment of one
or the other to achieve desirable effects and
avoid undesirable ones.

 It is the management of the revenue of a country, debt
load and expenditures via several quasi-government and
government institutions.This branch assesses the
government revenue and expenditure of public
authorities. Public finance studies the governmental
impacts of economic stability, efficient allocation of
resources, and distribution of income among citizens.
 It is the management of the revenue as well as
expenditure at every stage where the public of the country
is involved.To develop the economy of the country, public
finances are crucial for the effective utilization of funds. It
emphasizes the function and role of the government in an
economy.

 Public finance has a huge impact on the economy since it
can be utilized for implementing economic objectives.This
includes ensuring equality in terms of income as well as
wealth redistribution for citizens. It also helps in
redistributing resources so that certain industries are
encouraged while limiting the rest. For this purpose,
subsidiaries are offered and investments are brought in.
 Through taxes, strategic planning takes place which helps
in funding the massive project so that the purchasing
power of the economy can improve during periods of
crisis. Public finance contributes the holistic development
and well-being of the macroeconomics of the society.This
results in the sustained growth consistent with the time in
full transparency.

 Collecting Revenue: One of the important components of
public finances is collecting revenue through fines, taxes,
charges, import duty for running the economy.
 Preparing budgets:Another important component is
setting a budget which includes an annual forecast of
revenue and expenditure.This helps in analyzing the
requirement of debtor for investing in finances.
 Investment analysis: It is necessary to assess and determine
whether the funds are in excess or short. Accordingly, the
decision related to the deployment of funds is made.
 Public expenditure:This is important for building
infrastructure and fulfilling requirements in order to run the
government.
 Tax collection: It is one of the main sources of revenue for
governments that help in the development of the country.

 The following are the objectives of public finances:
 The aim of public finances is managing and fulfilling the public
requirements.This is a basic yet essential objective of public
finance that facilitates economic growth and development.
 Public finances help in public financial management, which results
in economic development.This helps in the economic growth and
development of the country.
 Through the optimum allocation of resources, inequality within
the economic and social structures also reduces.
 Through public finance, it is possible to control inflation and thus
maintain stability in prices.
 Another objective of public finance is to fulfill the fundamental
requirements of a nation.This involves planning, allocation of
resources, and regulating the country’s finances by creating fiscal
policies while setting a budget to ensure the growth of the nation.

 The following are the functions of public finances:
 Preparing economic policies for the development of the
economy and nation.
 Managing income and expenditure through the optimum
utilization of resources.
 Maintaining transparency of policies as well as records of
income and expenditure.
 Comparing actual position with budgets and modifying
policies to better manage the economy.
 Fulfilling the financial and infrastructural requirements of
the public.
 Maintaining functionality and effectiveness of financial
policies.

 1. Public Revenue
 2. Public Debt

 The income collected through different sources is known as public
revenue or public income.There are several sources of Public
finances, including non-tax revenue and tax revenue.
 Non-tax revenue includes administrating revenue, commercial
revenue, gifts and grants and irrigation charges.
 Administrating revenue includes such as fee, fines and penalties,
special assessments, escheat, and Forfeitures.
 In terms of commercial revenue, toll, postage, borrowed funds,
electricity payment, etc. are included.
 The other type of public revenue includes tax revenue which
includes progressive taxes, regressive taxes, degressive taxes,
direct & indirect taxes and specific & ad valorem tax.
 2. Public Debt

 It is the total amount of money that government owes to the public as a part of
development funds. All prior deficits in addition, are known as public debt. It can
be either short-term or long-term. Public debt can be of the following types:
 Internal and external debt:When the borrowing is from within the country, it is
known as internal debt. Banks, business firms, and individuals are the sources for
lending internal debt. External debt is borrowings from outside the country.
World bank and Asian Development Bank are two prominent external lenders.
 Compulsory and voluntary debt:The debts that are mandatory for the public to
pay such as taxes, are known as compulsory debt. On the other hand, voluntary
debt includes debts such as the ones where commercial banks subscribe to
securities issued through government loans.
 Productive and unproductive debt:When the debts owned bring revenue to the
government, they act as productive debt and are self-liquidating in nature. When
loans are a burden on the community, they are referred to as unproductive debts.
For this, government charges additional taxes for repayment and services.
 Redeemable and irredeemable debt:These are the debt that the government
repays after a fixed period. For selling securities to the public, the government
borrows money from them.When there is no promised date for repayment by
the government, then it is known as irredeemable debt and is not reported by the
government.

 Private finance refers to financial activities
and decisions made by individuals and private
businesses, such as managing personal
savings, obtaining mortgages, and making
investments.

 The main scope of public finance may be summarised as under:
 Public Revenue:
 Public revenue concentrates on the methods of raising public revenue, the principles of taxation and its
problems. In other words, all kinds of income from taxes and receipts from the public deposit are
included in public revenue. It also includes the methods of raising funds. It further studies the
classification of various resources of public revenue into taxes, fees, and assessments, etc.
 Public Expenditure:
 In this part of Government finance, we study the principles and problems relating to the expenditure of
public funds.This part studies the fundamental principles that govern the flow of Government funds into
various streams.
 Public Debt:
 In this section of public-finance, we study the problem of raising loans.The public authority or any
Government can raise income through loans to meet the shortfall in its traditional income.The loan
raised by the government in a particular year is the part of receipts of the public authority.
 FinancialAdministration:
 Now comes the problem of organization and administration of the financial mechanism of the
Government. In other words, under financial or fiscal administration, we are concerned with the
Government machinery which is responsible for performing various functions of the state.
 Economic Stabilization:
 Now, a day’s economic stabilization and growth are the two aspects of the Government's economic
policy which got a significant place in the discussion on public finance theory. This part describes the
various economic policies and other measures of the government to bring about economic stability in
the country.


 There are two types of private finance – Personal
finance and business finance. Personal finance is only
limited to an individual or household level. It includes
investment, banking, saving, loans, tax management,
and retirement planning. Individuals make short-term
investments where they can earn quickly.They always
consider their income before making investments.
Business finance means the management of the
financial activities of a company. In this, we study how
to get capital and use it for the growth of the
company. Well, management of finance can help
increase the capital of a company.