Scope of Public Finance

Scope of Public Finance

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Public Finance examines the expenditure and revenue of the public authorities. It encompasses a variety of governments. In other words, it deals with the finances of the federal, state, and local governments. Additionally, it addresses issues related to the government's income and expenditure adjustments. According to Prof. Dalton, “It is concerned with the income and expenditure of public authorities and with the adjustments of one to another”. The importance of Public Finance can be divided into two categories, according to Adam Smith, "Public finance is an investigation into the nature and principles of the state revenue and expenditure." The connotation follows that public finance primarily is concerned with a couple of items namely:

a. What the State Does

b. The impact that financial transactions have on economic life.

Important Sub-Divisions (Or Classification) of Public Finance - The following are the five main sub-divisions of Public Finance:

a. Taxes on the Public

b. Spending by the public

c. The Public Debt

d. Funding

e. Management and control of the finances.

Public Finance is often considered a Science due to the fact that it uses knowledge to achieve a variety of goals. To achieve a variety of objectives, including full employment, economic equality, and development, its central component—fiscal policy—makes use of information about the revenues and expenditures of the government. Public Finance investigates the relationship between government spending and income.

Scope OF PUBLIC FINANCE

a. Price Stabilization - The prices of goods and services are stabilized and avoided by PUBLIC FINANCE. This tool is used by the government to keep an eye on the country's inflation and deflation. By lowering the tax rate, the government lowers the prices of goods during deflation to meet rising demand. The government, on the other hand, raises capital expenditure and tax rates when inflation occurs.

b. Wealth is distributed equally - It aids in the equitable distribution of wealth and income throughout an economy. Underdeveloped nations face several serious issues, one of which is wealth and income inequality. Thus, it becomes imperative for the government to devise mechanisms to spend on development activities for poor people.

c. Economic Stability - Public finance also plays a significant role in the economy's stability. The taxation is a tool the government uses to control and improve the economy. The tax rate rises when an economy experiences prosperity and people have more money at their disposal. On the other hand, it raises demand during deflation by lowering the tax rate.

d. Proper Allocation of Resources - For any economy to grow, resources must be allocated effectively. Public finance supports the government in the optimum utilization of all-natural and man-made resources. The government may subsidize highly desired goods or even impose lower tax rates. On the other hand, the government may levy a higher tax rate on less popular goods.

e. Encourages Savings and Investment - Public Finance is a tool that the government uses to encourage saving and investing among its citizens. Due to a high level of spending on activities that result in consumption and low or no investment, most people are unable to save their income. People can be encouraged to save money and invest by the government by lowering tax rates and providing some price relief.

f. Encourage Exports - Every nation needs to export goods and services to generate sufficient foreign exchange. In an economy, Public finance helps the government encourage exports and discourage imports. Exportable goods are taxed at a lower rate or even exempt from tax altogether. On the other hand, imports of goods are restricted by raising tax rates on them.

g. Creates facilities for the infrastructure - The development of a nation's infrastructure necessitates significant expenditures on the part of the government. The government receives sufficient funds from the public fiancé to cover these costs. It makes it possible to provide better and more up-to-date public facilities like hospitals, roads, railways, educational facilities, and so on.