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 person

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 dbt and
deficit financing are studied.

2) Theory of Public Expenditure – Problems related to the govt. expenditure are studied in this branch of
public finance.

3) Financial Administration – This 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

1) 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 govt.It 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 govt.’revenue and
expenditure.

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

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

Importance of Public Finance

1) Increase in the Activities of government - Govt. responsibility today is not merely to maintain Peace
and order rather the modern welfare govt also work for the economic devlopment, full employment ,
price stability ,eradication of poverty, etc. So owing to an increase in economic devlopmentand social
welfare activities , there has also been an increase in the importance of public finance.
2) Effect on Economic life – The activities of public finance like public expenditure , taxation system , etc
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 income

3) 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 account that study of public