Public Finance: Mastering the Art of Public Finance, Empower Your Financial Literacy

By Fouad Sabry

What is Public Finance

The study of the function that the government plays in the economy is referred to as public finance. It is the subfield of economics that analyzes the revenue for the government and the expenditures for the government of the public authority, as well as the modification of either one or the other in order to achieve desirable outcomes and avoid unpleasant ones. The scope of public finance is believed to be threefold, consisting of the impact that the government has on the following: the distribution of income among citizens; the effective utilization of available resources; and the stability of the economy.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: Public finance

Chapter 2: Economy of Denmark

Chapter 3: Tax

Chapter 4: Index of economics articles

Chapter 5: Fiscal policy

Chapter 6: Deficit spending

Chapter 7: Government budget balance

Chapter 8: Fiscal federalism

Chapter 9: Government spending

Chapter 10: Michael Boskin

Chapter 11: Government budget

Chapter 12: Optimal tax

Chapter 13: Ministry of Finance (Chile)

Chapter 14: Public economics

Chapter 15: Environmental economics

Chapter 16: Public budgeting

Chapter 17: Theories of taxation

Chapter 18: Fiscal sustainability

Chapter 19: Benefit principle

Chapter 20: Fiscal capacity

Chapter 21: Glossary of economics

(II) Answering the public top questions about public finance.

(III) Real world examples for the usage of public finance in many fields.

(IV) Rich glossary featuring over 1200 terms to unlock a comprehensive understanding of public finance. (eBook only).

Who will benefit

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of public finance.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Dec 18, 2023
• ISBN: 9791222092720

Book preview

Chapter 1: Public finance

The study of public finance examines the government's role in the economy. Considered to be trifold, the scope of public finance consists of government effects on:

The effective use of available resources; The income distribution among citizens; and

The robustness of the economy.

Jonathan Gruber, an economist, has developed a framework for evaluating the expansive field of public finance. Gruber proposes that public finance be considered in terms of four central questions:

When should government intervention be implemented? There are two fundamental reasons for government intervention: Failure of the market and the redistribution of income and wealth.

How could the federal government intervene? Once the decision to intervene has been made, the government must select the specific intervention tool or policy option (for example public provision, taxation, or subsidization).

How do these interventions influence economic outcomes? A question designed to evaluate the empirical direct and indirect effects of a particular government intervention.

Why do governments choose to intervene in the manner in which they do? This question is central to the study of political economy and the theory of how governments determine public policy.

Public finance, one of the more traditional subfields of economics, focuses on the function and role of the government in the economy. The inhabitants of a region established a formal or informal entity known as the government to carry out a variety of tasks, such as providing social necessities such as education and healthcare and protecting the private property of the populace from outside threats.

The analysis of public finances begins with a consideration of the proper role of government. Theoretically, under certain conditions, private markets will allocate goods and services among individuals efficiently (no waste occurring and individual preferences matching the economy's productive capacity). If private markets were able to produce efficient outcomes and the distribution of income was socially acceptable, then government would have little to no role. However, conditions for private market efficiency are frequently violated. For instance, if many people can enjoy the same good at the same time (non-rival, non-excludable consumption), then private markets may provide insufficient quantities of that good. The national defense is an example of non-competitive consumption or a public good. Market failures can be caused by externalities, public goods, informational advantages, strong economies of scale, and network effects. However, public provision through a government or a nonprofit organization is susceptible to other inefficiencies, termed government failure.

Government decisions about the efficient scope and level of activities can be separated from decisions about the design of taxation systems under broad assumptions (Diamond-Mirrlees separation). According to this view, public sector programs should be designed to maximize social benefits minus costs (cost-benefit analysis), and then revenues needed to pay for these expenditures should be raised through a taxation system that distorts economic activity as little as possible, thereby minimizing efficiency losses. In practice, government or public budgeting is significantly more complex and frequently leads to inefficient practices.

Government spending can be financed through borrowing (e.g., government bonds), but borrowing is a method for distributing tax burdens over time rather than a substitute for taxes. The difference between government spending and revenue is the deficit. The sum of cumulative deficits is the total public debt. Deficit finance enables governments to smooth tax burdens over time and provides governments with a crucial fiscal policy instrument. Deficits can also limit the options available to succeeding governments. In addition, there is a distinction between public and private finance. In public finance, the source of revenue is indirect, such as various taxes (specific taxes, value-added taxes), whereas in private finance, the source of revenue is direct.

Good financial management involves collecting sufficient resources from the economy in an appropriate manner, as well as allocating and utilizing these resources efficiently and effectively. A public financial management system's essential components are resource generation, resource allocation, and expenditure management (resource utilization).

The following subcategories comprise the subject matter of public finances.

Public expenditure

Public revenue

Public debt

Financial administration

Federal finance

fiscal policy

Three types of government expenditures are distinguished by economists. Government consumption is defined as the acquisition of goods and services by the government for current use. Government investments consist of purchases of goods and services with the intention of creating future benefits, such as infrastructure investments and research expenditures. Transfer payments are government expenditures that do not involve the purchase of goods or services but instead represent monetary transfers, such as social security payments.

Government operations are the activities involved in running a state or a functional equivalent of a state (such as tribes, secessionist movements, or revolutionary movements) in order to create value for the citizens. Government operations have the authority to create and enforce rules and laws within a civil, corporate, religious, academic, or other group or organization.

Distribution of income – Certain forms of government spending are designed to transfer income from one group to another. For instance, governments sometimes transfer funds to those who have suffered a natural disaster-related loss. In a similar manner, public pension programs redistribute wealth from the young to the elderly. Other types of government spending that represent purchases of goods and services also alter the income distribution. For instance, war may transfer wealth to specific sectors of society. The transfer of wealth to families with children in public schools. The construction of public roads transfers wealth from those who do not use the roads to those who do (and to those that build the