Government finance is a field of economics concerned with governmental activities of payment. It deals with the expenditure and revenue of the nation or state. The field is often divided into questions of what the government or collective organization should do or are doing ,and questions of how to pay for those activities.
The proper role of government provides a starting point for the analysis of public finance. if private markets were able to provide efficient outcomes and if the distribution of income were socially acceptable ,then there will be little or no scope for the government. In many cases, however, conditions for private market efficiency are violated. Public finance is closely connected to issues of income distribution and social equity. The government can reallocate income through transfer payments or by designing tax systems.
According to Prof. Dalton, “Public finance is concerned with the income and expenditure of public authorities and with the adjustment of the one to the other.”
Philip E. Taylor’s says, “Public finance deals with the finance of the public as an organized group under the institution of the government. It, therefore, deals only with the finance of the government.”
Public finance can play a vital role for the expansion activities of statelike security, development activities, etc. because these are the primary function of government.
Public finance can play an important role in reducing economic inequalities which are the cause of dissatisfaction, class struggle, poverty, etc. The government can impose progressive taxes on the high level of income earner and invest the fund for the welfare of the poor people. Likewise, heavy taxes can be imposed on the use of harmful commodities, such as harmful drugs, wine, and others.
Unemployment is being the burning issue of almost all countries of the world. Public finance plays an important role in raising the employment providing grants, subsidies, etc. to cottage and small scale industries.
Government implements a fiscal policy to maintain the economic stability. Economic stability refers to stability in the price level, saving, and investment, demand and supply of goods in the market.
Most of the developing countries are facing the problem of non-utilization or even destruction of deficient and limited resources. The result of this fundamental problem lies in the optimum usage of available resources.
Without government support and helping poor country, it will be very difficult to bring about a favorable change in the economic base of a country. That’s why heavy investment is made by the government in the development of basic key industries, agriculture, tourism, infrastructure, etc. Greater the public expenditure, higher is the level of economic development.
The balance of payment (BOP) of a country is an annual record of its monetary transactions with other transactions with other countries of the world. Public finance helps to correct the balance of payment reducing unfavorable BOP. Imposition of higher taxes on a foreign product can reduce the import and export and promote the export, government reduction in export, taxes of domestic products in international market, etc.
Governments do not have their own money. Money spent by a government is all collected from the source like Tax. The revenue collected from the various source by a government is called Government Revenue.
There are various sources of government revenue. They are explained below:
Tax is the most source of government revenue. Tax is the compulsory charge imposed by public authority. There are various types of tax like Income tax, Value Added Tax (VAT), Land revenue tax, etc. Tax revenue consists the following sources:
2. Non-tax revenue
The fee is the actual amount paid to the government for the services to the beneficiaries. However, fees are usually paid by those individuals who received some benefits from services given by the government such as education fee, training fee registration fee etc.
Fines and penalties are actually imposed by the government for the violation of a certain law. The main goal of the fine and penalty is to prevent and reduce the crime and repetition mistake.
The government charges special assessment to those people, who directly got benefit from the construction of roads, bridges, street lightening, electricity, irrigation, and infrastructure etc.
The amount claimed by the government on the death of a person without any heir or does not have any legal inheritance is called escheats .The government also increases revenue from the source.
The government can earn income from the sales of goods and services by the public enterprises. Besides this, the government also earns profit public utility industries like drinking water, electricity, telecommunication, transportation, post offices, public sector bank etc.
A government receives grants for the development programs, security expense and to meet even regular expenses from the foreign government and international instructions Most of the developing countries depend upon the foreign grants to fulfill their deficit.
(Karna, Khanal, and Chaulagain)(Khanal, Khatiwada, and Thapa)(Jha, Bhusal, and Bista)
Jha, P.K., et al. Economics II. Kalimati, Kathmandu: Dreamland Publication, 2011.
Karna, Dr.Surendra Labh, Bhawani Prasad Khanal and Neelam Prasad Chaulagain. Economics. Kathmandu: Jupiter Publisher and Distributors Pvt. Ltd, 2070.
Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.
Importance of Government Finance
Source of government revenue