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MODULE I: MEANING AND SCOPE OF PUBLIC FINANCE - Coggle Diagram
MODULE I: MEANING AND SCOPE OF PUBLIC FINANCE
Meaning and Scope
Public Finance for modern governments to include different types of expenditure and various sources of revenue.
IMPORTANCE OF PUBLIC FINANCE
Provision of public goods
Public finance enables governments to tackle or offset undesirable side effects of a market economy
Public finance helps governments to redistribute income
Public finance provides many a program for moderating the incomes of the rich and the poor
The acceptance of the principle of welfare state, the role of public finance has been increasing
As the scope of state participation in economic activity is widening, the scope of public finance has also been increasing.
SUBJECT MATTERS OF PUBLIC FINANCE
Public revenue
Public expenditure
Public debt
Financial
administration e
Economic stabilization
Federal Finance
Public Finance and Private Finance
Similarities
Both the State as well as individual aim at the satisfaction of human wants through their financial operations
Both the States and Individual at times have to depend on borrowing, when their expenditures are greater than incomes
Both Public Finance and Private Finance have income and expenditure.
For both kinds of finances, the guiding principle is rationality
Both are concerned with the problem of economic choice, that is, they try to satisfy unlimited ends with scarce resources having alternative uses.
Dissimilarities
The private individual has to adjust his expenditure to his income But on the other hand the government first determines its expenditure and then the ways and means to raise the necessary revenue to meet the expenditure
The government has large sources of revenue than private individuals while Private borrowings are external in nature
The state, when hard pressed, can resort to printing of currency But Private raise income by creating money
The state prepares its budget or estimates its income and expenditure annually. But there is no such limitation for an individual
A surplus budget is always good for a private individual But surplus budgets may not be good for the government
The individual and state also differ in their motives regarding expenditure Private profit motive. & the welfare motives
The private individual spends his income on various items in such a manner as to secure equip utilities from them The government on the contrary does not give as much importance to this law as a private individual does
Individuals always seek quick returns they save only a small amount for future and spend more to satisfy their current needs. State has a long term perspective of its expenditure
expenditure But the state can change the nature of an economy through its fiscal policies
The pattern of expenditure in the case of private finance is often influenced by customs, habits, social status etc. The pattern of government expenditures is guided by the general economic policy followed by the government
Private Finance is always a secret affair But Public Finance is an Oper Affairs
Individuals can plan to postpone their private expenditure but the State cannot afford to put off vital expenditure like defense, famine relief etc.
Major Fiscal Functions
Allocation functions
Distribution functions and
Stabilization functions
THE PRINCIPLE OF MAXIMUM SOCIAL ADVANTAGE
The State should balance the social burden of taxation and social benefits of Public expenditure in order to have maximum social advantage
CATEGORIES OF GOODS
PUBLIC GOODS
Characteristics of Public goods
Non-rival in consumption
Non-excludable
Free-rider problem
PRIVATE GOODS
FEATURES
Excludable
Rivalry in consumption:
Revealed Preference
MIXED GOODS
Merit Goods