Nature and Scope of Public Finance

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Nature and Scope of Public Finance

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Nature and Scope of Public Finance

The study of public finance relates to financial activities of the government including the financial activities central govt

., state

govt. and local govt.

Public and Private Finance

Public finance is concerned with the economic activities of the govt.

Private finance is related to finance of a



Subject Mattter of Public Finance

The subject matter of public finance can be divided into following parts:

1) Theory of public Revenue – This branch of publics finance is related to the study of all those sources through which a govt. earns revenue. In it ,various sources of govt. income , such as taxes, public


and deficit financing are studied.

2) Theory of Public Expenditure – Problems related to the govt. expenditure are studied in t

his branch of public finance.



) Financial Administration –


his branch of public finance studies the income and expenditure of the financial administration of the govt.

4) Stability and Growth - In the present times , public finance is mainly concerned with the economic stability and other related problems of a country.

5)Federal Finance – Distribution of the sources of income and expenditure between the central and the state govt. in the in the federal system of the govt. is also studied as the subject matter of public finance



Nature of Public Finance



Public Finance is a science – Science is the systematic study of any subject which studies causal relationship between facts. Public finance is a systematic study relating to revenue and expenditure of the


also studies the causal relationship between facts relating to revenue expenditure of the government.

2) Public Finance is an art – Art is the application knowledge for achieving definite objective. Fiscal Policy which is an important instrument of public finance makes use of the knowledge of


and expenditure.


finance is an art. It is concerned with real problems.


short, Public finance is both science and art. It positive science as well as normative science


Importance of Public Finance



Increase in the Activities of government - Govt. responsibility today is not merely to maintain


and order rather the modern welfare


also work for the economic


, full employment , price stability ,eradication of poverty, etc. So owing to an increase in economic


and social welfare

activities , there

has also been an increase in the importance of public finance.


) Effect

on Economic life – The activities of public finance like public


, taxation system ,


have a great effect on economic life . As a result of the govt. policy regarding taxation or expenditure , production can be increase, saving can be increased.


Significance of public finance to modern economy is evident from the following:

1)To Achieve Adjustment in allocation of resource – study of public finance tells how coordination among the allocation of resources should be effected. Income and expenditure process of the govt. serves to allocate the resources of the country between private goods and social goods . It also determine the quantum of production of different social goods.

2)To Achieve Adjustment in the Distribution of Income and Wealth – Study of Public finance give us knowledge of those methods which help us to inequalities of

wealth and




) To Achieve Economic Stability –1) In order to remove involuntary unemployment

, effective demand

be stimulated by reducing the taxes. 2)To check inflation, public expenditure be curtailed and the 3)If there is full employment and price stability in the economy , then existing level of taxes be maintained.

4)To Achieve Economic Development – T o increase the rate economic growth , it is essential to accelerate the rate of capital formation. Hence, fiscal policy should be so framed as to increase the rate of saving and investment and reduce consumption.

It is clear from the above


that study of public finance is of utmost importance in the modern times


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