Public Finance Article Index for
Public
Website Links For
Public
 

Information About

Public Finance




Public finance ('''government finance''') is the field of Economics that deals with Budget ing the Revenue s and Expenditure s of a Public Sector entity, usually government.

Matters addressed by the subject include:
  • effects of government spending, taxation, and borrowing on households, businesses, and the Economy

  • rules that should apply to the conduct of such activity

  • Tax Incidence (who really pays a particular tax)

  • voluntary exchange vs. government-mandated provision of goods and services

  • Cost-benefit analysis of government activity

  • the role of government in affecting Income Distribution through taxes, government spending on Goods , and Transfer Payments

  • efficiency and distribution effects of different kinds of taxes (for example, on income or consumption)

  • fiscal politics, modelling public spending and taxation as affected by interactions of self-interested voters, politicians, and bureaucrats. (Musgrave, 1987)


  • Government Efficiency - how efficient are governments at obtaining their objectives? how much of their expenditure actually goes to where it is intended? what types of waste exist?

  • Scope of government activities - what do governments spend money on? what should governments spend money on? what can be left to Markets ? Why governments should be concerned with Externalities , Public Good s.



Externalities and government policy

  • Internalization of Externalities

  • The Coase Theorem . The Coase theorem is the idea that government, with the power to establish the rights to use resources, can internalize externalities when transaction costs of bargaining are zero.



Public goods

  • Characteristics

  • The demand for pure public goods

  • Efficient output of a pure public good

  • The Free Rider Problem



Public choice and the political process



GOVERNMENT EXPENDITURES

See Also: Government spending



Government operations

See Also: Government operations


Government operations are those activities involved in the running of a a State or a functional equivalent of a state (for example, Tribe s, Secessionist movements or Revolutionary movements) for the purpose of producing Value for the Citizen s. Government operations have the power to make, and the authority to enforce rules and laws within a Civil , Corporate , Religious , Academic , or other Organization or group. Columbia Encyclopedia, ''Government'', Columbia University Press In its broadest sense, "to govern" means to rule over or supervise, whether over a State , a set group of people, or a collection of people. See for example, The American Heritage Dictionary of the English Language, entry "Govern"


Income distribution

See Also: Income distribution


  • Income distribution - How will these government expenditures influence the incomes of one group relative to another group?various Government programs transfer Wealth to people that have suffered a loss due to natural disaster. Social security transfers wealth from the young to the old. Engaging in a war transfers wealth to certain sectors of society. Public education transfers wealth to families with children in these schools. Public road construction transfers wealth from people that do not use the roads to those people that do (and to those that build the roads).

  • Income Security

  • Employment insurance

  • Health Care



FINANCING


Government financing can be achieved by Seigniorage , Taxes , or government Borrowing . This area can involve Right-financing , the Income Redistribution effects of the various types of taxes and types of borrowing, Tax Incidence , and the Effect Of Taxes On Market Prices And Efficiency .


Taxes

See Also: Tax


A tax is a financial charge or other Levy imposed on an individual or a Legal Entity by a State or a functional equivalent of a state (for example, Tribe s, Secessionist movements or Revolutionary movements). Taxes could also be imposed by a Subnational Entity . Taxes consist of Direct Tax or Indirect Tax , and may be paid in Money or as '' Corvée '' labor. A tax may be defined as a "pecuniary burden laid upon individuals or property to support the government a payment exacted by legislative authority." Black's Law Dictionary , p. 1307 (5th ed. 1979). A tax "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any contribution imposed by government [ . . . whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name."Id.


Debt

See Also: Government debt


Governments, like any other legal entity, can take out Loan s, issue Bonds and Invest . Based on the taxing authority of the entity, they issue bonds such as Tax Increment Bond s or Revenue Bond s. Government debt (also known as public debt or national debt) is Money (or Credit ) owed by any level of Government ; either Central Government , Federal Government , Municipal Government or Local Government .

As the government represents the people, government debt can be seen as an indirect debt of the Tax payers. Government debt can be categorized as Internal Debt , owed to lenders within the country, and External Debt , owed to foreign lenders. Governments usually borrow by issuing Securities such as Government Bond s and bills. Less credit worthy countries sometimes borrow directly from Commercial Bank s or supranational institutions. Some consider all government liabilities, including future Pension payments and payments for goods and services the government has contracted for but not yet paid, as government debt.


Seigniorage

See Also: Seigniorage


Seigniorage is the net Revenue derived from the issuing of Currency . It arises from the difference between the Face Value of a Coin or Bank Note and the cost of producing, distributing and eventually retiring it from circulation. Seigniorage is an important source of revenue for some national Bank s.


SEE ALSO



NOTES



REFERENCES

  • Anthony B. Atkinson and Joseph E. Stiglitz (1980). ''Lectures in Public Economics'', McGraw-Hill Economics Handbook Series

  • James M. Buchanan and Richard A. Musgrave (1989). ''Public Finance and Public Choice: Two Contrasting Visions of the State''. MIT Press Google book excerpts

  • Richard A. Musgrave (1959). ''The Theory of Public Finance: A Study in Political Economy''.

  • '', v. 3, pp. 1055-60.

  • Richard A. Musgrave and Peggy B. Musgrave (1973). ''Public Finance in Theory and Practice''

  • Joseph E. Stiglitz (2000). ''Economics of the Public Sector'', 3rd ed. Norton.



EXTERNAL LINKS