This document outlines the topics to be covered in a course on public finance. The course will introduce key concepts like the meaning and scope of public finance. It will examine theories of taxation and public expenditure. Topics will also include budget deficits, public debt, and the political process aspects of public finance decisions. The overall aim is to provide students with the theoretical foundations for understanding public resource management.

1. DEPARTMENT OF FINANCE AND
ACCOUNTING
DFI 306: PUBLIC FINANCE
By
Barasa, Joseph Lumumba

2. DFI 306: Public Finance – Unit Objectives
• The course seeks at provide students with the
theoretical foundation regarding public
resource management
• Theory of Public Sector: Why Public Sector?
• Theories of financing the public sector and
expensing public resources ,
• Effect of raising and expending public finance
on the economy, individual citizen and other
economic agents in particular.
• Who is the governor of governments?

3. Course Outline-Topic I
• I Introduction
• Meaning and Scope of Public Finance
• Nature of Public Finance
• Public Finance Vs Private Finance
• Public Sector Functions in Developed Countries
• Role of the Public Sector (Economic and Social
Responsibility }in Developing Countries
(Musgrave and Musgrave, (1989), pp 3-14; 41-71
Todaro, M, (1992), Economics for a Developing
Country

4. Course Outline-Topic II
• II Sources of Public Finance
• Pubic Revenue (Sources of)
• Tax Revenue Vs Non-Tax Revenue
• Case Study of Kenya Since 1970-2009 (Class
Assignment)
(Kenya National Budgets, Budget Statistical
abstracts, Economic Surveys, World Economic
Outlook-Kenya Data-IMF Website etc.)

5. Course Outline-Topic III
• III Taxation Theory
• Theories of Taxation (Expediency, Social-Political,
Benefit Received , Lindahls’s , Cost-of Service,
Ability to Pay, New-World-Order Philosophy)
• Classification and choice of Taxes
• Effects of Taxation
• Characteristics (Canons) of Optimal Tax System
• (Musgrave and Musgrave, (1989), pp 211-233;
Rerum Noverum, (1892); Bhatia)
•

6. Course Outline-Topic IV
• IV Tax Incidence and Tax shifting
• Impact, Incidence and Effect of Tax
• Theory of Tax Incidence (Rosen & Gayer 305)
• Tax Burden (Rosen & Gayer 331)
• Tax Burden Incidence -Commodities, Income ,
Land Values and Building Values
• (Musgrave and Musgrave, (1989), pp 234-313)

7. Course Outline-Topic V
• V Public Expenditure
• Public Expenditure (Meaning and Scope)
• Public Expenditure – classifications
• Public Expenditure Growth Theories
• Cost-Benefit Analysis and Government
Investments
• Forms of Public Expenditure
• Canons of Public Expenditure
• Effects of Public Expenditure

8. Course Outline-Topic VI
• VI Budget Deficit and Public Debt
• Budget theories
• Public Debt
• Classification of Public Debts
• Public Borrowing
• Public Debt and Public Assets
• Economic Effects of Deficits
• Debt Burdens

9. Course Outline-Topic VII
VII Public Choice and the Political Process
• The Political Process - Political equilibrium
• Political Equilibrium under Direct Democracy
(Unanimity Model, Majority Voting Model,
Logrolling Model & Arrow’s Impossibility
Theorem)
• (Musgrave and Musgrave, (1989), pp 87-108,
Rosen and Gayer (), pp 106-133)

10. • Political Equilibrium under Representative
Democracy (Elective Politicians, Public
Employees, Special Interest Groups)
• Special Interest Groups and Political Process
• (Musgrave and Musgrave, (1989), pp 87-108,
Rosen and Gayer (), pp 106-133)

12. DFI 306: Public Finance-Introduction
• MEANING OF FINANCE
• refers to valuable economic resources
• Measured in monetary terms where money is a unit
of measure of value--Include
i. Land - (Physical land, forests, sea resources,
minerals – Natural endowment and gifts) – Rent
ii. Labour – Human effort expended in economically
productive activities , mostly unskilled –
Salary/wages
iii. Entrepreneurship – the enterprising nature,
attribute of man. Characterized by risk taking,
adventurous, Profit/Dividend ( Residual Surplus)

13. DFI 306: Public Finance-Introduction
iv Management – the organizational attributes of
man involving planning, organizing, allocating,
controlling, evaluating - Salary
v Capital - the assembly of resources from
accumulation of saving, may exist in form of
physical producer goods, seed money, skilled
manpower, other utility or wealth generating
assets – Interest
vi Technology – a form of regenerative stock of
skilled manpower. Involves accumulation of
knowledge, skills that is involved in innovation
and inventions
It takes risk to invent and innovate

14. DFI 306: Public Finance-Introduction
PUBLIC-
• All people within the imaginable future/
foreseeable future
• Including the borne, yet to be born ( in
mothers wombs) and yet to be conceived
• Within a given geographical jurisdiction
(village, county, state, continent or globe)
• Including the human race plus the non-human
race (ecosystem) which contributes to the
conducive existence of human beings
• Involves all of us.

15. Meaning And Scope of Public Finance
• States Finances
• The concept of public finances has been altered
over time. As part of modern thought to have
about public finances, several authors agree in
considering it as “public power enjoyed by the
state to avail itself of material wealth necessary
to its life and performance”.
• Rose and Roberto Santillan Aniceto is “The
science that deals with the study and ways of
obtaining cash income, including its use by the
public and its effects in economic and social
development.

16. Meaning And Scope of Public Finance
• Another definition is: “… public finance involved in the
monitoring of resources obtained by the state through
various means and the correct channel in order to
obtain optimal results, both administratively and in
programs of action.”
• John F. Due said that “Public Finance deals with those
parts of the economy that relate to the economic
activities of government as a political organization of
society. ”

17. • Barasa, “opines that public finance refers to a
study of management of resources held by a
legitimately appointed public authority on
behalf of the general public to be expended
for the publics maximum welfare”

18. DFI 306: Public Finance-Introduction
• Nature of Public Finance
• Public Finance Vs Private Finance
• Public Sector Functions in Developed
Countries
• Role of the Public Sector (Economic and Social
Responsibility }in Developing Countries
(Musgrave and Musgrave, (1989), pp 3-14; 41-71
Todaro, M, (1992), Economics for a Developing
Country