2. • Classical School of Philosophy
• Marxian View
• Keynesian View
• Role of State in Indian Ecnomy
3. Role of State
• According to Professor Musgrave there are three major fiscal or budgetary
functions of the governments
• a) Allocation functions
• b) Distribution functions and
• c) Stabilization functions.
4. THE ALLOCATION FUNCTION
• There are certain cases in which the wants of all individuals cannot be satisfied
through market mechanism.
• In such cases the public sector or the governments have to provide goods and
services.
• The allocation branch of public finance deals with the provision of social goods.
• Social goods are those goods and services produced to satisfy collective wants.
• Collective wants are those wants which are demanded by all members of the
community in equal or more or less equal amounts
5. THE DISTRIBUTION FUNCTION
• The very important feature of a market economy is the disparity in the
distribution of income and wealth.
• The distribution function of public finance deals with the adjustment of the
distribution of wealth and income to ensure “fair or just” state of
distribution.
• That is, the distribution function of public finance deals with the
determination of taxes and transfer payments policies of the governments
6. THE STABILIZATION FUNCTION
The stabilization function deals with the use of budgetary policy as a means of
maintaining high employment, a reasonable degree of price stability and an
appropriate rate of economic growth, with allowances for effects on trade and
balance of payments.
The major instruments of stabilization policy are monetary policy and fiscal
policy. This function is otherwise known as compensatory finance
