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.
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
To quote Lutz, 'Public finance deals with the provision,
custody, and disbursement of resources needed for the conduct of public or
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.