Public Finance

Public Finance:

Introduction :
Public finance is one of the old branches of economics which highlights the role and functions 
of the government in an economy. Government is a formal or informal institution created by the people in a specific region to perform various functions such as protection from external attacks, protection of private property of the people, generation of employment, maintaining internal law and order, provision of social needs like education, health, etc.
These functions of the government can be classified as :
1) Obligatory functions :
Protection from external attacks, maintaining internal law and order etc. are obligatory functions of the government. A state cannot lead an isolated existence. It depends upon other states of the world for its multifarious needs. It is, therefore, essential that every state should maintain diplo­matic relations with other states of the world. Therefore, this is an obligatory function as there is strong mutual interdependence between Governments of different states.
2) Optional functions :
Provision of education and health services, provision of social security like pensions and other welfare measures etc. are optional functions of the government. Setting up labour tribunals for deciding the disputes of factory owners and labour is completely a voluntary decision of the Government. However, at present all states have provision for this under their Jurisdiction. States regulating industry through its control of currency and supervision of banking in the country is also an optional function.

Meaning and Nature of Public Finance :
To perform the above mentioned functions, adequately and efficiently, any government needs funds which can be received from various sources. The concept of public finance is a combination of two words ‘public’ and ‘finance, ‘Public’ is a collective for the individuals living within an administrative territory. In economics, it is used to signify the government which represents the public. ‘Finance’ simply means income and expenditure. Thus, ‘public finance’ is nothing but a study of the principles of income and expenditure of the government at central, state and local levels. This study is done under the public finance branch in economics.

Definitions of Public Finance :

1) According to Hugh Dalton :
“Public finance is one of those subjects which are on the borderline between economics and politics. It is concerned with the income and expenditure of public authorities and with the adjustment of one with the other.” Since we study the activities of the governments in political science too, public finance also constitutes a part of the study of political science.
2) According to Prof. Findlay Shirras :
“Public finance is the study of the principles underlying the spending and raising of funds by public authorities.”