Public Finance implies a branch of economics that deals with government activities and the various sources used to finance expenditures. It deals with government revenues, expenses, debts, and their effects on the economy as a whole.

As the name implies, public finance is concerned with the management of finances of agencies or public bodies such as Central Government, state government, and local government to carry out their activities, which results in the accrual of money for the provision of subsidies, public utilities, and social services to residents.

Public utilities include education, health, sanitation, transportation, infrastructure, electricity, communications, food, etc. The primary sources of revenue for providing these services are taxes, levies, fees, foreign aid, the sale of goods and services, borrowing, money creation, etc.

Elements of public finance

Public Revenue: Also referred to as government revenue, it includes revenue generated or received by the government from various sources – Tax Revenue and Non-Tax Revenue.

Tax revenues include income tax, corporate tax, taxes on imports and exports, excise duty, goods and services tax, etc. On the other hand, non-tax revenue includes revenue from fees, surplus from Public Sector Undertakings, capital receipts, fines and penalties, grants and gifts, central bank receipts, etc.

Public Expenditure: As the name suggests, public expenditure refers to the expense incurred by public bodies to meet the general needs of the public.

Expenditures are made in connection with the defense, health care, medical research, economic development, infrastructure development, provision of social security, and government maintenance.

Public Debt: Also called Government Debt, it indicates the total outstanding debt, which is the amount a country owes to creditors, which can be individuals, corporations, and other governments.

Creditors can be internal (debt owed to domestic lenders such as banks or financial institutions) and external (debt owed to international financial institutions and governments).

Financial management: Financial Administration is the part of public finance that deals with administrative control techniques and budget preparation issues. It is an instrument by which the financial operations of countries are carried out.

financial management is how the budget is prepared, adopted, and implemented? What are things considered in the preparation of the budget? How do the various agencies collect taxes? Which departments are responsible for auditing and reporting the public accounts?

Economic stabilization: the primary aim of the economic system is the stability of the economy. It refers to the condition where the fluctuations in the economy are very low due to the political, legal, or monetary policies of the government.

Hence, the inflation rate is relatively low. The country’s fiscal policy plays an important role here to ensure equitable distribution of national income in the country, which leads to economic stability.

Economic Growth: Economic growth is said to be when the production of goods and provision of services increases compared to the previous years. Many experts believe that the problem of economic growth is only in developing countries.

Therefore, Public Finance is considered one of the main tools through which the government can overcome economic growth.

Does Public Finance examine how the government raises funds? Where does it spend the funds raised? How does the government working at different levels provide necessary services and facilities to the public? And how the government arranges funds to provide these services.

In more acceptable words, it looks at public finance according to the facts, principles, policies, theories, techniques, rules, and problems that determine, direct, influence, and regulate the use of financial resources for alternative projects initiated by the government.

Also, Read What is Monopoly With Examples.


This is Mohanraj Reddy✌️❤️ Creator at Business Mavericks & a Big Dreamer, Wanderlust, Music, & a Trader.

Write A Comment