Public finance or government finance is a field of economics. It deals with budgeting the revenues and expenditures of government (or public sector). It is about the identification of and appraisal of the means and effects of government financial policies. Public finance deals with the financing of the State activities and it discusses the financial operations of the public treasury. Fiscal economics is another name for public finance.
The functions of the government were minimal in the early days of the development of economic philosophy. The economic decisions were guided by the market forces of demand and supply and the government was not expected to interfere with the working of the market forces. Earlier governments limited their activities to a) the maintenance of law and order b) the defence of the country c) administration of justice d) general administration. The early State was a police State.
Modern governments do not confine their activities to the barest minimum. Besides the activities performed by the early State, modern governments undertake a number of growth and development-oriented projects and welfare activities for the well-being of the people. The modern State is a Welfare State. Therefore there is a change in the concept of a modern State which is a welfare State. The State has to mobilize adequate resources for meeting out the ever increasing expenditures, as the responsibilities and functions of the State have multiplied.
Fiscal economics in the modern days has undergone far-reaching changes. These changes can also be studied through macro aspects of fiscal policy. It relates to macro economic functions of the government. It is concerned with the taxation, public expenditure and monetary policy which affects the overall level of employment and price level. It may be noted that there is a link between economic theory and the theory of public finance.
Economists have defined public finance differently. The following are some of the popular definitions:
According to Dalton, 'Public finance is concerned with the income and expenditure of public authorities and with the adjustment of the one with the other'.
Findlay Shirras says that, 'Public finance is the study of the Principles underlying the spending and raising of funds by public authorities'.
To quote Lutz, 'Public finance deals with the provision, custody, and disbursement of resources needed for the conduct of public or government functions'.
We may conclude from the above definitions that Public Finance or Fiscal Economics is concerned with the principles and practices of obtaining funds and spending the same for achieving the maximum social welfare and economic growth in the country.
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