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The Role of Public Finance in Economics

Public finance deals with the finances of public. It thus deals with the finances of government. The finances of the government include the raising and disbursement of government funds. It is concerned with the operation of the public treasury.

The study of public finance has assumed increasing importance in the recent decades. Several factors contributed this trend. The money expenditures and the money receipts of the government may affect not only the pattern of production and the distribution of the total product among the various income receivers, but also the levels aggregate output and prices within the economy.Since 1930, the various aspects of government finance have been increasingly in reference to their effects on the economy as a whole, as well as their impacts upon the treasury.

In modern times public finance includes four major divisions: public revenue, public expenditure, public debt, and certain problems of the fiscal system as a whole, such as fiscal administration and fiscal policy.

Public finance, like economics, generally deals with people, and this means that many of its problems depend on human behaviour which is the subject matter of psychology. For example, taxation requires a study of human motivation.

Should a government’s budget present a balance sheet of assets and liabilities as well as an operating statement of current income and outgo? In arriving at the net income of a firm for tax purposes, it is customary and logical to allow a deduction for depreciation on the capital used by the firm. The concept of income, playing a major role in public finance literature, is an accouting concept.

Public finance also involves may legal problems. There are many cases where public finance and law overlap.

Economics deals with the administration of scarce resources to satisfy human wants. Since, it is the function of the state to satisfy the wants of its citizens, the issues involved in taxation are a part of economics.

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  1. Gijo George

    On May 25, 2008 at 7:51 pm


    Good Article. Throws light on how Public finance is functioning.

  2. Lucy Lockett

    On May 27, 2008 at 8:49 pm


    It is very important that people have an idea on how these resources function. Good article!

  3. Stephen Nico

    On June 23, 2008 at 9:18 am


    Nice Article

  4. capitalist

    On July 8, 2008 at 9:15 am


    I beg to differ with your assertion that it is the responsibility of the state to satisfy the wants of it’s citizens.Rather it should be the responsibility of each to satisfy their own wants, for the individual not the collective has the most informed insight into their own wants or needs.

  5. sunny jain

    On December 27, 2008 at 11:06 pm


    what is the role of finance in current ecomomy

  6. ronie aguilar

    On January 22, 2009 at 2:01 am


    is income and expenditure the same thing?

  7. ronie aguilar

    On January 22, 2009 at 2:04 am


    does public finance the same with government finance?

  8. moneyteacher

    On May 22, 2009 at 5:26 pm


    People should be thinking more about gold as an investment
    http://moneywisdom-gold.blogspot.com

  9. Joevany Mabuhay Jr.

    On December 11, 2009 at 1:03 am


    this article is not great, this is the greatest one…this will be more effective if u include the role of public finance, theory of social goods, functions of fiscal policy, resource generation in the government, resource allocation and budgeting, financial control in the government and fiscal stabilization…thank you!

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    wade was
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