Public Finance is a field of economics concerned with how a government raises money, how that money is spent and the effects of these activities on the economy and society. It studies how governments at all levels — national, state and local provide the public with desired services and how they secure the financial resources to pay for these services.
Public Finance is the aspect of economics that deals with the determination of government activities and expenditures.
It deals with taxing and spending activities of the government and their influence on allocation of resources and income distribution.
Public Finance is the financial statement that deals with the public authority.
Public Finance can also be seen as the activities of the government that centered on revenue and expenditure process as well as the welfare of the citizen through provision of essential services to the citizen.
OBJECTIVES OF PUBLIC FINANCE
1. It ensures price stability in the economy.
2. It leads to increase in the per capital income of the citizens.
3. It ensures favourable balance of payment.
4. It leads to high level of employment.
5. It ensures poverty reduction through income redistribution.
1. It ensures price stability in the economy.
2. It leads to increase in the per capital income of the citizens.
3. It ensures favourable balance of payment.
4. It leads to high level of employment.
5. It ensures poverty reduction through income redistribution.
IMPORTANCE OF PUBLIC FINANCE
1. Provision of public goods: For providing public goods like roads, military services and street lights etc. public finance is needed. Business firms will have no incentive to produce such goods, as they get no payment from private individuals.
2. Public finance enables governments to tackle or offset undesirable side effects of a market economy. The side effects are called spill overs or externalities. For example, pollution. The governments can introduce recycling programmes to lessen pollution or they can make laws to restrict pollution or impose pollution charges or taxes on activities that bring about pollution.
3. Public finance helps governments to re distribute income. To reduce the inequality in the economy, the governments can impose taxes on the richer people and provide goods and services for the needy ones.
4. Public finance provides many a programme for moderating the incomes of the rich and the poor. Such programmes include social security, welfare and other social programmes. The acceptance of the principle of welfare state, the role of public finance has been increasing. Modern governments are no more police states as the classical economists viewed.
5. As the scope of state participation in the economic activity is widening, the scope of public finance has also been increasing. Generation of employment opportunities, control of economic fluctuations like boom and depression, maintaining economic stability etc. are some of the thrust areas of the governments through fiscal operations.
1. Provision of public goods: For providing public goods like roads, military services and street lights etc. public finance is needed. Business firms will have no incentive to produce such goods, as they get no payment from private individuals.
2. Public finance enables governments to tackle or offset undesirable side effects of a market economy. The side effects are called spill overs or externalities. For example, pollution. The governments can introduce recycling programmes to lessen pollution or they can make laws to restrict pollution or impose pollution charges or taxes on activities that bring about pollution.
3. Public finance helps governments to re distribute income. To reduce the inequality in the economy, the governments can impose taxes on the richer people and provide goods and services for the needy ones.
4. Public finance provides many a programme for moderating the incomes of the rich and the poor. Such programmes include social security, welfare and other social programmes. The acceptance of the principle of welfare state, the role of public finance has been increasing. Modern governments are no more police states as the classical economists viewed.
5. As the scope of state participation in the economic activity is widening, the scope of public finance has also been increasing. Generation of employment opportunities, control of economic fluctuations like boom and depression, maintaining economic stability etc. are some of the thrust areas of the governments through fiscal operations.
PUBLIC SECTOR AND PRIVATE SECTOR
PUBLIC SECTOR refers to the section of national economy whose activities both economic and non-economic are under the control and direction of the government. It is not premised on consumer choice and its objective is maximization of social benefits.
Public Sector is produces public goods and provides services to improve the quality of life and welfare of the populace.
Public Sector is produces public goods and provides services to improve the quality of life and welfare of the populace.
PRIVATE SECTOR is where the means of production and distribution of resources are privately and individually owned. It is where activities both economic and non-economic are under the control and direction of non-governmental economic unit. Its main objective is profit maximization.
Resource allocation is through market economy you of price system based on revealed preference and consumer's level of income.
Resource allocation is through market economy you of price system based on revealed preference and consumer's level of income.
CATEGORIES OF GOODS
PUBLIC GOODS are the indivisible goods, whose benefits cannot be priced, and therefore, to which the principle of exclusion does not apply are called public goods. The use of such goods by one individual does not reduce their availability to other individuals. For example, the national defence.
PUBLIC GOODS are the indivisible goods, whose benefits cannot be priced, and therefore, to which the principle of exclusion does not apply are called public goods. The use of such goods by one individual does not reduce their availability to other individuals. For example, the national defence.
Characteristics of Public Goods
1) Non rival in consumption: One person’s consumption does not diminish the amount available to others. Once produced, public goods are available to all in equal amount. Marginal cost of providing the consumers is ZERO.
2) Non excludable: Once a public good is produced, the suppliers cannot easily deny it to those who fail to pay. That is, those who cannot (or do not agree to) pay its market price are not debarred or excluded from its use.
3) Free-rider problem:-- People can enjoy the benefits of public goods whether pay for them or not, they are usually unwilling to pay for public goods. This act is the so called free rider problem.
1) Non rival in consumption: One person’s consumption does not diminish the amount available to others. Once produced, public goods are available to all in equal amount. Marginal cost of providing the consumers is ZERO.
2) Non excludable: Once a public good is produced, the suppliers cannot easily deny it to those who fail to pay. That is, those who cannot (or do not agree to) pay its market price are not debarred or excluded from its use.
3) Free-rider problem:-- People can enjoy the benefits of public goods whether pay for them or not, they are usually unwilling to pay for public goods. This act is the so called free rider problem.
PRIVATE GOODS refer to all those goods and services consumed by private individuals to satisfy their wants. For example, food, clothing, car etc.
Characteristics of Private Good 1)Excludable:-The suppliers of private goods can very well exclude those who are unwilling to pay.
2)Rivalry in consumption:-One person’s consumption reduces the amount available to others. That is, the amount consumed by one person is unavailable for others to consume.
3)Revealed Preference:-The consumers reveal their preferences through effective demand and market price. These revealed preferences are the signals for the producers to produce the goods the individuals want.
2)Rivalry in consumption:-One person’s consumption reduces the amount available to others. That is, the amount consumed by one person is unavailable for others to consume.
3)Revealed Preference:-The consumers reveal their preferences through effective demand and market price. These revealed preferences are the signals for the producers to produce the goods the individuals want.
MIXED GOODS
Mixed goods are those goods having benefits which are wholly internalized(rival) and others, the benefits of which are wholly externalized (non-rival). The cost of producing such goods partly covered by private contributions and partly by government subsidy.
Mixed goods are those goods having benefits which are wholly internalized(rival) and others, the benefits of which are wholly externalized (non-rival). The cost of producing such goods partly covered by private contributions and partly by government subsidy.
MERIT GOODS
Those goods whose consumption and use are to be encouraged are called merit goods (e.g.; education) and goods whose consumption and use are to be discouraged are called non-merit goods or demerit goods (e.g., liquor, narcotic etc.) drugs.
Merit goods are socially desirable goods which promote social welfare. Merit goods are rival and excludable. Governments provide merit goods in order to ensure distributional justice. These are goods which governments feel if people will under consume or produce and therefore should be subsidized or provided free. Examples of merit goods are education, mid-day meals in schools, essential food articles etc this concept was introduced by Prof. R.A. Musgrave in 1959.
Those goods whose consumption and use are to be encouraged are called merit goods (e.g.; education) and goods whose consumption and use are to be discouraged are called non-merit goods or demerit goods (e.g., liquor, narcotic etc.) drugs.
Merit goods are socially desirable goods which promote social welfare. Merit goods are rival and excludable. Governments provide merit goods in order to ensure distributional justice. These are goods which governments feel if people will under consume or produce and therefore should be subsidized or provided free. Examples of merit goods are education, mid-day meals in schools, essential food articles etc this concept was introduced by Prof. R.A. Musgrave in 1959.
No comments:
Post a Comment