3. Public Finance
Applied Economics group
Syllabus
Unit 1- Public finance- Meaning, nature ,Scope and importance, Difference b/w
Public and Private finance, Principle of maximum social advantage, Role of state in
public finance, central and state relationship.
Unit 2- Sources of : taxes, loan,grants,aid-meaning,and types of canons of taxation,
problems of justice in taxation, incidence of taxation, taxable capacity ,impact of
taxation, and tax evasion,charateristic of indian tax systems , defects and steps of
reform
Unit-3 Principle of public expenditure ,principle of public debt and its methods of
redemption.
Effects of public expenditure on production and distribution. Public debt in India ,
debt to GDP ratio,impotance subsidies
Unit -4 Public finance in India :sources of revenue of central and state govt.,
concepts and types of budgets, fiscal deficit ,financing and deficit budgeting
,introduction of fiscal responsibility and budget management act.
Unit -5 Financial institution and marketing : role of RBI, stock exchange, recent
development in financial market, constitution and function of finance
commission, recommendation of latest finance commission, latest budget of
central and mp govt.., main heads of revenue and expenditure of central state govt.
4. Principle of Maximum Social Advantage
The Principle of Maximum Social Advantage states that public finance
leads to economic welfare when pubic expenditure & taxation are carried out
up to that point where the benefits derived from the MU (Marginal Utility) of
expenditure is equal to (=) the Marginal Disutility or the sacrifice imposed by
taxation.
5.
6.
7.
8. Diagrammatic Representation:
In technical jargon, the maximum social net advantage is achieved when the
marginal social sacrifice (disutility) of taxation and the marginal social
benefit (utility) of public expenditure are equated. Thus, the point of equality
between the marginal social benefit and the marginal social sacrifice is
referred to as the point of aggregate maximum social advantage or least
aggregate social sacrifice.
9. MSS is the marginal social sacrifice curve. It is an upward sloping curve
implying that the social sacrifice per unit of taxation goes on
increasing with every additional unit of money raised. MSB is the
marginal social benefit curve. It is a downward sloping curve implying
that the social benefits per unit diminishes as the public expenditure
increases.
11. State Sources
Capitation tax.
Duties in respect of succession to agricultural land
Duties of excise on certain goods produced or manufactured in the state, such as alcoholic
liquids opium etc
Estate duty in respect of agricultural land
Fees in respect of any of the matters in the State List, but not including fees taken in court
Land revenue
Rates of stamps duty in respect of documents other than those specified in the Union
Taxes on agricultural Income
Taxes on land and buildings
Taxes on mineral rights, subject to limitations imposed by Parliament relating to mineral
development.
Taxes on the consumption or sale of Electricity
Taxes on the entry of goods into a local area for consumption, use or sale
Taxes on the sale and purchase of goods other than than newspapers
Taxes on advertisements other than those published in newspapers.
Taxes on goods and passengers carried by road or on inland waterways.
Taxes on vehicles
Taxes on animals and boats
Taxes on professions, trades callings and employments
Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.
12. Taxes Levied and Collected by the Union, but Assigned to the States
(Article 269)
Duties in respect of succession to property other than agricultural land.
Estate duty in respect of property other than agricultural land.
Taxes on railway fares and freights.
Taxes other than stamps duties on transactions in stock exchanges and
future
Taxes on the sale or purchase of newspapers and on
advertisements published Markets
Terminal taxes on goods or passengers carried by railways, sea or air
Taxes on the sale or purchase of goods other than newspapers where such
sale or purchase takes place in the course of inter- state trade or Commerce
13. Taxes Levied and Collected by the Union, but Assigned to the States
(Article 269)
Duties in respect of succession to property other than agricultural land.
Estate duty in respect of property other than agricultural land.
Taxes on railway fares and freights.
Taxes other than stamps duties on transactions in stock exchanges and future
Taxes on the sale or purchase of newspapers and on advertisements published
Markets
Terminal taxes on goods or passengers carried by railways, sea or air
Taxes on the sale or purchase of goods other than newspapers where such sale or
purchase takes place in the course of inter- state trade or Commerce
14. Duties Levied by the Union, but Collected and Appropriated by the
States (Article 268)
Stamp duties and duties of excise on medicinal and toilet preparations (those
mentioned in the Union List) shall be levied by the Government of India but shall be
Collected
In the case where such duties are leviable within any Union territory, by the
Government of India.
In other cases by the States, within which such duties are respectively leivable
Taxes Which are Levied and Collected by the Union but Which may be
Distributed between the Union and the States (Articles 270 and 272)
Taxes on income other than agricultural income
Union duties of excise other than such duties of excise on medicinal and toilet
preparations as are mentioned in the Union List and collected by the Government of
India.
Taxes on income does not include corporation tax. The distribution of income-tax
proceeds between the Union and the States is made on the basis of the
recommendations o f the Finance Commission.
15. Public Debt
Public Debt in the Indian context refers to the borrowings of the Central and State
Governments. Public debt of Central Government consists of internal and external
debt and other liabilities.
Internal Debt
Includes market borrowing, money raised by issuing bonds treasury bills, special
securities issued to the RBI
External Debt
Includes borrowings from foreign countries and international financial
Non-government external debt includes NRI deposits, trade
credit, external commercial borrowings etc.
16. State Sources
Capitation tax.
Duties in respect of succession to agricultural
Duties of excise on certain goods produced or manufactured in the state, such as
alcoholic liquids opium
Estate duty in respect of agricultural
Fees in respect of any of the matters in the State List, but not including fees taken in
Court
Land Revenue
Rates of stamps duty in respect of documents other than those specified in the Union
List
Taxes on agricultural Income
Taxes on land and buildings
Taxes on mineral rights, subject to limitations imposed by Parliament relating to
mineral development.
17. Taxes on the consumption or sale of Electricity
Taxes on the entry of goods into a local area for consumption, use or sale
Taxes on the sale and purchase of goods other than
Taxes on advertisements other than those published in newspapers.
Taxes on goods and passengers carried by road or on inland waterways.
Taxes on Vehicles and Boats
Taxes on animals and
Taxes on professions, trades callings and
Taxes on luxuries, including taxes on entertainments, amusements, betting and
gambling.
Tolls
18. Taxes Levied and Collected by the Union, but Assigned to
the States (Article 269)
Duties in respect of succession to property other than agricultural land.
Estate duty in respect of property other than agricultural land.
Taxes on railway fares and freights.
Taxes other than stamps duties on transactions in stock exchanges and
future
Taxes on the sale or purchase of newspapers and on
advertisements published
Terminal taxes on goods or passengers carried by railways, sea or air
Taxes on the sale or purchase of goods other than newspapers where
such sale or purchase takes place in the course of inter- state trade or far
20. Union Sources
Corporation tax.
Currency, coinage and legal tender, foreign
Duties of excise on tobacco and certain goods manufactured or produced in
Estate duty in respect of property other than agricultural land.
Fees in respect of any of the matters in the Union List, but not including any fees taken in
any
Foreign
Lotteries organized by the Government of India or the Government of a
Post Office Savings
Post and Telegraphs, Telephones, Wireless, Broad casting and other like forms of
communication.
Property of the
Public Debt of the
Rates of stamps duty in respect of Bills of Exchanges, Cheques, promissory Notes
Reserve Bank of
Taxes on income other than agricultural
Taxes on the capital value of the assets, exclusive of agricultural land of individuals and
companies.
Taxes other than stamp duties on transactions in stock exchanges and future
Taxes on the sale or purchase of newspapers and on
advertisements published
Terminal taxes on goods or passengers, carried by railways, sea o
