PUBLIC FINANCE

Introduction.

By A.S.MALIK

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Public finance(government finance)-is the field of economics that analyses the revenue and spending policies of the government. Public finance includes public revenue, public expenditure, public debt, financial administration and fiscal policy. Public finance tries to evaluate the role of the government in economic activities.

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Therefore, the main division of public finance is: Public Revenue Public Expenditure The government Budget Public Borrowing

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a)Government revenue. Government revenue(income of the government) means those amounts, which are received by the government from different sources. The following are the main sources of Government revenue: Taxes( Income tax , VAT, sales tax, excise tax, custom duty.

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Sources of government revenue:
Fee (road license fee, import license fee, school fee and etc) Special assignment( e.g. government charges a specific amount from the residents of a particular area for the establishment of a secondary school, hospital and so on. Fines (when individuals contravene with the country laws, then he will be penalized, and that form part of

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b).Government Expenditure. The government has a duty to serve her citizens. The government has to offer such services by fulfilling all responsibilities by carrying on all the functions through government expenditure. The government expenditure can be recurrent or Development.

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Types of Government spending: Direct purchase of consumable goods and services by public authority Direct purchases of capital goods by public sector Transfer payments (pensions) Interest payments

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There are reasons for the size of government expenditure which are: Population expansion High price level(Inflation) Unanticipated calamities.eg Flood, hunger Number of development programs.

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Principles of Public spending: Maximization of social benefit Value for money spending( 3Es, Economy, Efficiency and Effectiveness. Authorization Sound financial administration procedures.

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c) Government Budget What is a Budget? A "budget" is a plan for the accomplishment of programs related to objectives and goals within a definite time period, including an estimate of resources required, together with an estimate of resources available, usually compared with one or more past

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What is a Government budget? It is a tool that reflects the choices that government has to make and is the tool it uses to achieve its economic and development policies or goals. In the budget, the government sets out what it is going to spend(expenditure) and the income to be collected through various sources, which it needs to finance

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Government budget has a essential role in the planning and control of the economic of a nation: a)Allocation of resources b)Fair distribution of income and wealth. This function refers to the use of budgetary policy to redress inequalities in income and wealth distribution.

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c) Stabilization of the economy. Government budget are used to promote a certain level of employment, stability in prices, economic growth and so on. Budgetary policy can encourage sustainable economic growth through the planning potential of the budget.

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d)Public Borrowing. The government especially developing countries have shortage of resources to finance its development programs or social services, therefore the government decide to borrows some money from inside or outside the country. The amount remain unpaid by the government are known as public

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Types of Public Debt. External Debt-foreign countries, World Bank, IMF etc. Internal Debt-Treasury Bonds,internal Banking Institutions, and NonBanking Institutions