What is Public Finances and why is it important?

Public finance is the division of economics that determines the role of the government in the economy. This method is used to manage the revenue and expenditure of a nation. The study of public finance deals with taxation, borrowing, and financial deficit.

What is public finance and why is it important

If you want to know ‘what is public finances?’ We have got you covered. To know the answer to this particular question, you should read the article in full. We will also explain the topic in detail.

What is Public Finances?

If you want to meet your needs, you need money. And to earn money, you look for various sources of income to sustain your standard of living. Similarly, assume that the US is one huge house. If you want to run that house, you will need finances and revenue. Well, you won’t only be running the house, but you will also be looking after all the people living in that house. Moreover, you will have to plan about the developments and growth opportunities as well. To maintain a sustainable living, you will need others to make contributions as well.

When you will collect all the money from everyone, which would be the public’s money that you should ensure to use it right. For this, you will have to choose a team, who can allocate a required amount to each need and use the remaining amount for growth and development.

Now apply the above-mentioned example to a country’s economy.

Moving forward, everything has a purpose and objectives, similarly, public finance has four major objectives. Read below to know about them in detail.

What are the Objectives of Public Finances?

The four objectives of public finances are as follows:

Taking care of Public needs

It is one of the primary objectives. It is a government’s responsibility to ensure that the basic needs of the public are being met adequately, which includes, but is not limited to food, shelter, healthcare, education, etc.

Economic Growth and Development

A strong economy is a precursor to a developed nation. By managing public finances correctly and allocating the money to the potential business sectors, the government ensures development and growth opportunities for the people.

Financial Equality

Since childhood, we are taught, sharing is caring. By collecting taxes from the rich and providing relief packages for the needy, the government makes sure that everyone’s basic needs are met adequately.

Price Stability

We all know that the US is a free-market economy and everyone has the right to make a profit. In a capitalist economy, price inflation exists, which means that the working class may not be able to afford their needs. Public finance plays a pivotal role to keep price inflation in check to ensure that everyone can afford basic needs.

Moving ahead, now you know what the primary objectives of public finance are. However, it doesn’t end here. Public finances are divided into four categories. In the next section, we will help you understand public finances in more detail.

4 Types of Public Finances

1. Public Revenue

As the name suggests, public revenue is the collection of money from the public via direct or indirect taxes. Moreover, fines, penalties, maintenance fees, tickets at government-owned places are also part of public revenue.

2. Public Expenditure

All the expenditure that is incurred in the development of public infrastructure and facilities, falls under the category of public expenditure. The public expenditure includes expenditures on facilities such as infrastructure, healthcare, education, etc.

3. Public Debt

When public expenditure exceeds the revenue of the country, then the government is forced to take debt from other financial institutions to run the economy. The borrowed amount is called public debt.

4. Financial Administration

As far as financial administration is concerned, it is the process of managing public finance and the needs of the government. The government not only has to manage the public revenue, but it is also responsible to provide salaries to the government employees, monitor the expenditures related to the maintenance of public heritage, etc.

Before we conclude, let us give you a brief account of the functions of public finance.

What are the Functions of Public Finances?

One of the most important functions of public finance is to manage income and expenditure by ensuring optimum utilization of resources.

Another important function is to manage the growth and price stability in the economy. Other than this, fulfilling the necessities of the public, taking initiatives for the development of public infrastructure that contributes to the development of a country, keeping records of collected income and expenditures, and maintaining the transparency of policies are also some of the major functions of public finances.

Bottom Line

Public finance is the way of managing public funds, but it’s not limited only to this, it encompasses other elements, including price stability, economic growth, income inequality, unemployment, human rights, etc. It requires proper planning, allocation of resources, and controlling unfavorable situations by making financial policies to ensure the growth of the nation as a whole.

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