Public finance is a branch of economics that studies the income and spending of government in an economy. It explains the role of the government in the economy by analyzing the process of tax collecting and government expenditure in the economy. Public finance follows a given cycle thus calling for adjustment of one or more expenditure items in order to achieve the desired economic growth. Public finance will cover allocation of resources, income distribution and economy stability.
The study of public finance is necessary in any economy in order to ensure economic accountability by the government. We provide public finance homework help to all level of students undertaking economics. We offer professional academic services backed up with quality and thorough research in corporate finance homework and public finance.
Sources of government fund
- Internal and external borrowing
- Through state owned enterprises
- Forex trading
Need for public finance
According to JSTOR website, public finance is instrumental for plethora of reasons. Among them including enhancing economic stability, equitable distribution as well as price stability. Let as look into some of these reasons.
Public finance provides proper fiscal tools and strategies to the government in order to attain an economic stability. For instance, during an economic boom the government can increase taxes and use the amount realized in repayment of foreign debts. On the other hand, the government can lower taxes during recession in order to shield the citizens from the tough economic times.
Allocation of resources
The government can use public finance as a tool to efficient distribution of resources in the economy. It can choose to charge high taxes on luxurious goods in order to realize funds for providing subsidies and incentives to cushion the low income earners in an economy.
Taxation is the main source of income for the government. However the government can use it as a tool towards discouraging consumption of harmful goods like cigarettes. On the other hand the government can also use taxation as a protection tool. For instance, infant industries can enjoy a tax free grace period in the economy.
Some public utilities are sensitive and expensive to be left in the hands of private individuals. The government handles such projects and identifies areas which require infrastructure upgrades or developments. Most governments use infrastructure development and social amenities as a way of servicing the society.
Public finance plays an important role as a tool to shield the economy from inflation. During inflation, the government can reduce indirect taxation and general expenditure in order to stabilize the price of goods. Once we have stable prices, then we can remove the waiver.
Principles of public finance
Non optional principle
The joint government require that all economic entities contribute without exemptions. This is done through levies and taxation. Although the entities contribute to the government budget, this does not entitle them to privileges or public goods.
Unlike many business transactions, where there is exchange of equivalent value of goods for money; public finance does not follow this principle. It is not with certainty that the business will obtain benefits from the government equivalent to the amount of tax paid.
Although economic entities contribute to a common fund, the services expended are not in equivalent of contribution. For instance, poor households contribute low taxes to the government but receive high incentives or subsidies from the government.
Government failures in public finance
Difficulty in measuring the impact
There is difficulty in measuring the impact of projects implemented by the government. The problem arises due to difference between the time of initiation and implementation. Government project usually take longer period of time to implement. A project which was seen necessary five years ago could be obsolete today.
Auditing of the measures is limited
Auditing the impact of a given fiscal policy and whether it has attained the set objectives is hard. The auditing could involve measuring and relating of numerous and complicated items hence making it impossible.
Conflict of interest
Many projects are implemented by government workers who may hold interest in the given sector. In this case it would be difficult for the officer implementing the project to put the needs of the public first while neglecting his own.
Political processes and politician views could divert form economic theories and reality. This could lead to the implementation of project that currently doesn’t benefit the economy of a country.
Public finance homework help
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