Public finance involves the study of government revenue and expenditures. It examines sources of tax and non-tax revenue, types of taxes, public spending objectives and classifications, public debt, and financial administration. Public finance aims to maintain economic stability and growth through tools like taxation, expenditures, loans, and debt management. Both public and private finance address the economic problem, aim to maximize satisfaction from limited resources, and balance income and expenditures, though they differ in allowed sources of funds, borrowing scope, budgeting approach, long-term perspective, and motivations.

1. Public Finance
Definition
Is a studyof publicrevenueandexpenditures
Scope Of Public Finance
1. PublicRevenue
 The publicrevenue referstothe income of the government.
 Broadlythe income of the governmentcanbe dividedintotax revenueandnon-tax
revenue.
 Thispart explainsthe typesof taxes,the effectontaxesonthe economy&the people,
the advantages& disadvantage of taxesetc.
 It alsoincludesthe studyof the sourcesof non-tax revenue of the government.
2. PublicExpenditure
 Thispart of publicfinance explainsthe objectivesof publicexpenditure,the
classificationof publicexpenditure,causesof increase inpublicexpenditure,effectsof
spendingmoneyin differentways,etc.
 Thispart also explainshow the governmentcaninfluence the productionof goodsand
services,throughthe instrumentsof publicexpenditure.
3. PublicDebt
 Thispart explainsthe classificationof publicdebt,burdenof publicdebtand the causes
responsible forgrowthof publicdebtinmoderneconomies.
 It alsoexplainswhythe governmentrequiresloans,debtmanagementandthe methods
usedbythe governmentfordebtredemption.
4. Financial administration
 Thisis a more practical part of publicfinance.
 It studiesthe procedure tobe followedbythe governmentinimposingtaxes,collecting
the taxes,spendingthe collectedmoneyandgettingthe governmentincome&
expenditure auditedbythe competentauthority.
 It alsoexplainshowthe governmentadjuststhe twosidesof publicfinancetoeach
other.
5. Economic stability& growth

2.  Thispart of publicfinance takesustothe objectivesof publicfinance namely,to
maintaininternal andexternal economicstabilityandtoexpedite the rate of economic
growth.
 The governmenthasto maintainthe balance betweenstabilityandeconomicgrowth.
Function Of Public Finance
PublicFinance isdefinedasastudyof income andexpenditure of the government.Naturallythe
functionsof publicfinance are similartofunctionsof the government.the functionsof publicfinance
have alsogrown,multipliedanddiversifiedoveralongperiod.Theycanbe presentedasfollows:
1. Defence
 The firstand foremostresponsibilityof the state (government) hasbeentoprovide
protectiontothe people againstthe aggressionof othercountriesorextremistsorother
groupsof people.
 Eventodaythe ministryof defenceisthe one of the mostimportantand highprofile
ministriesof anygovernment.
 A verylarge part of the budgetisearmarkedforthe defence of the country.
2. Maintenance of law and order
 Anycommunityischaracterisedbythe presence of the some anti-social elements.
 Theyuse othermeanslike committingthefts,smuggling,contractkillingetc.andearn
theirincome.
 Hence it isthe responsibilityof the governmenttoprotectthe communityagainstsuch
anti-social elements.
3. Economic growth
 The responsibilityof amodernstate isnotonlyto preserve the social orderbutto
improve itinall ways.
 In lessdevelopedeconomies,the economicgrowthof the countryisgiventoppriority
afterdefence.
 Publicfinance hastoprovide adequate resourcesforinvestingindifferentsectorsand
bringingabouteconomicgrowth.
4. Reducinginequalities
 Extreme inequalitiesare bad.
 Theygive rise tosocial unrest,revolutionsandbloodshed.
 Hence one of the functionsof publicfinance istoreduce inequalities.

3.  Thiscan be done bycharging highertaxestopeople withhighincomeandprovidingaid
to people withlowerincomesinthe formof free orsubsidizedfood,freehouses,
medical aid,educationetc.
5. Reducingregional inequality
 In a vast countrylike India,some partsare more developedandsome partsare less
developed.
 Regional inequalitiesgiverise toseveral problemssuchaslarge scale migrationsfrom
lessdevelopedpartstomore developmentparts.
 Thisproblemisveryevidentinthe cityof Mumbai where lakhsof people migrate from
variouspartsof the country.
Publicfinance helpstoreduce regional inequalitiesbycollectingmore taxesfromdevelopedstatesand
spendingitonlessdevelopedstates
Similarity Between Public And Private Finance
1. The Economic Problem
 Both,an individual andacommunityface the economicproblem.
 Both,the societyaswell asan individual have toarrange the wantsinan orderof
importance andsatisfythem.
 An individual wouldfirstpayattentiontoacquiringfood,clothingandshelter.
 The society,underthe leadershipof the governmenthastopay attention firstto
defence of the country,maintenanceof law andorderand thengo to satisfythe other
wantsin orderof importance.
2. The aim
 The aim of the governmentistogetmaximumsatisfactiontothe community.
Similarlythe aimof anindividual inearning the income andspendingit,istogetmaximumsatisfaction
for himself andhisfamilymembers
3. The procedure to achieve the aim
 Withthe objective of gettingmaximumsatisfactionfromthe limitedresourcesavailable,
the governmentdistributesitsincome on differentitemsof expenditureinsucha way
that the marginal utilityof moneyspentondifferentitemstothe communityisequal.
 An individual alsofollowsthe same procedure indistributionof hisincome.
 Thus,the lawof equi-marginalutilityenablesboththe governmentandthe individual to
obtainmaximumsatisfactionfromthe total amountof moneyspent.
4. Balancing income & expenditure

4.  The income and expenditureof anindividualneednotbalance everymonth.
 Similarly,the incomeandexpenditure of the governmentneednotbalance everyyear.
Differences Between Public And Private Finance
1. Sources ofincome
 The governmentcandependupontaxation,borrowingsandcreationof new moneyas
sourcesof its income.
 An individual dependsuponsalary,rent,interest,profitwhichare sourcesof hisincome.
He can alsotake a loan.
 The governmentcanprintpapercurrency againstcertainassetsanduse that currency
as itsincome.Thissource isnot opento an individual.
2. Source and size of borrowing
 The governmentcantake an internal loani.e.loanfromitsowncitizensoran external
loani.e.loanfromsome otherstate or citizensof some otherstates.
 An individual cantake a loanfromsome otherindividuals.
 Further,the capacityof the governmenttoborrow ismuch largerthan the capacityof
any individual toborrow.
 Also,the governmentcangetloansmore easilyandoneasytermsand conditionsas
comparedto an individual.
3. Balancing income and expenditure
 Government–Adjustsincome asperthe expenditure
 Individual –Adjustsexpenditure asperthe income
4. Budget principle and market principle
 The governmentdoesnotenquire aboutgettingaproperprice for itsservices.Whether
the cost of service iscoveredornotcovered,the governmentgoesonrenderingthe
servicestothe citizensif theyare necessary.
 An individual isguidedbythe marketprinciple.He wouldproduce acommodityora
service andrenderitto someone elseonlyif the price receivedcoversthe costof
production.
5. Perspective
 A societyhasa verylonglife,itisalmosteternal.Therefore the governmentcantake a
verylongtermviewof itsfinances.Itmay incursome expenditure atpresenteven
though,the returnsmay be reapedaftera considerablylongtime.

5.  The visionof an individualislimited.A personcanlookto at the most the next
generationbutnotbeyondthat.
6. Motive
 The governmentworksforsocial welfare.Ittakesupa particularprojectwithout
considerationof profitorlosstoitself.
An individual looksatthe profitmotive.A personproducesacommodityora service andsellsitonlyif
the price earnedcoversthe cost of productionandleavessomethingforthe producerof the service
Recap Of Similarity And Differences Between Public And Private Finance
Sr
No
Similarity Differences
1 The economic problem Sources of income
2 The aim Source and size of
borrowing
3 The procedure to achieve
aim
Balancing income and
expenditure
4 Balancing income and
expenditure
Budget principle and market
principle
5 Perspective
6 Motive