Public Finance

In modern welfare state, the government sector plays a very important role. The conservative attitude of the classical economists towards the Govt. sector has undergone a drastic change under the impact of Keynesian revolution. The classical economists had restricted the role of the Govt. to the maintenance of law and order and protection of the country from external attack. Government’s intervention in business matters was considered as unwarranted and undesirable. This was the clear reflection of the policy of laissez faire advocate by the Classicals. During the twentieth century, the concept of welfare state has changed the traditional functions of the state. Now the Govt. is not a silent spectator of economic problems of the state. In addition to the traditional functions of maintaining law and order, protecting the country from external attack, the Govt. now providers a variety of essential services to the people. These include provision of education and health care, water supply, sanitation, transport and communication, conservation of natural resources, protection of environment and so on.

The subject matter of public finance can be broadly divided into five main branches.

Public Expenditure

Expenditure incurred by the Govt. to carry out different welfare activities for the state is called public expenditure. The principles and effects of public expenditure are discussed in this branch.

Public Revenue

Tax revenue and non tax revenue are discussed in this branch. Its effect on the economy, the principles of taxation, the burden of taxation etc. are the subject matter of this branch.

Public Debt

Sources of public borrowing, methods of debt repayment, and effects of public debt are discussed in this branch.

Fiscal Administration

Preparation of budget, presentation and approval of budget etc. are discussed here.

Federal Finance

This branch discusses the center-state financial relation in a federal set up and the distribution of resources between the center and the state.