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Chapter: 11th 12th std standard Indian Economy Economic status Higher secondary school College

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Subject matter of public finance(Fiscal Policy)

The following subdivisions form the subject matter of public finance 1. Public expenditure 2. Public Revenue 3. Public debt 4. Financial administration and 5. Federal finance

Definition

 

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.

 

Subject matter of public finance

 

The following subdivisions form the subject matter of public finance

 

1.        Public expenditure

 

2.        Public Revenue

 

3.        Public debt

 

4.        Financial administration and

 

5.        Federal finance

 

1. Public expenditure

 

Since the modern government represents a welfare state, the responsibility of the government is to bring about maximum social welfare. In addition to this, it has to perform various other functions, which require heavy expenditures. We study in this sub-division, the fundamental principles governing the flow of government funds into different spending streams and the methods of incurring expenditure on the various activities.

 

2. Public Revenue

 

Public revenue means different sources of government's income. It deals with the methods of raising revenue for the government, principles of taxation and other related problems. Raising of tax revenue and non-tax revenue is the subject matter of public revenue. Tax revenue deals with the kinds of taxes and the impact and incidence of various taxes. Non-tax revenue includes

 

i.)   Commercial revenue (income earned through sale of goods and services and profits earned by public sector enterprises),

 

ii.)  Administrative revenues (Fees, license fees, special assessments),

 

iii)  Gifts and grants.

 

3. Public debt

 

The problem relating to the raising and repayment of public loans is studied under this sub-division. Borrowing by the government from the public is called public debt. In modern world, it is not possible for the government to meet all its expenditure through tax and non-tax revenue. Hence public revenue falls short of public expenditure. As a result, governments are forced to borrow from internal and external sources. In the case of internal debt, Government borrows from the people, commercial banks and the central bank. External debt includes borrowing from international monetary institutions like IMF and World Bank and also from foreign countries. The soundness of the borrowing policy of the governments and indication of the healthy direction of spending are examined under this sub-division.


4. Financial administration

 

Financial administration is concerned with the organisation and functioning of the government machinery that is responsible for performing various financial activities of the state. Preparing the budget for the particular financial year is the master financial plan of the government. The various works, starting with the objectives of designing a budget, the methods of preparing it, presentation of the budget before the Parliament and State Assembly, passing or sanctioning by the Parliament, execution, auditing, implementation etc., constitute the subject matter of financial administration.

 

5. Federal finance

 

Federal finance is a part of the study of public finance. A federation is an association of two or more states. In a federal form of government, there are: Central, State, and local governments. The interrelationships between these forms of governments, and the problems related to them and the financial functions of all these units are studied under federal finance.

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