Public Finance: Definition, Features & Objectives

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Meaning of Public Finance

Public Finance is an aspect of economics that state how a government gets and spends the revenue it collects. In a more technical sense, it can be defined as that branch of economics that studies the relationship between the revenue and expenditure patterns of the government.

Public Finance
Public Finance

Public finance provides a practical mechanism to the management and control of the economy.

Objectives of Public Finance

  • To develop a coherent and sound fiscal policy with the aim of promoting economic growth and development. Fiscal policy is the policy pursued by a government for raising a revenue necessary to meet its expenditure. It embraces the scope and degree of taxation, national debts, government borrowing, etc.
  • To identify all sources of revenue as well as diversify the revenue base of government.
  • To influence the level of aggregate demand, curtail inflation and unemployment.
  • To raise revenue for financing government expenditure.
  • To correct regional imbalances or high income differentials among citizens.
  • To correct the balance of payments disequilibrium through fiscal measures.
  • To stabilize the economy in periods of boom or depression.

Sources of Govemment Revenue

The main sources of government revenue are:

  • Taxation: A tax is a compulsory payment made by citizens and corporate bodies to the government to enable it carry out its responsibilities. Examples include income and property tax.
  • Borrowing: Government can borrow from individuals and organizations both within and outside the country.
  • Fees and other charges: These include license fees, certificate of occupancy fees, school fees, court fines, etc.
  • Earnings from public enterprises: These are dividends. received yearly by the government from companies in which it owns shares as well as proceeds from the sale of certain products or services by government agencies or corporations.
  • Royalties and rents: The Government also collects rents for the use of public land and royalties from companies that are granted the right to exploit mineral deposits.
  • Aid and Grants: This is money in kind or in cash received from rich and friendly countries.
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