PUBLIC FINANCE

Public Finance

is a part of financnce which covers around the central question of allocation of resources subjected to the budget constraint of the government of public entities.  Public sector finance tries to examine the effects and consequences of different types of taxation and  expenditures on the economic agents (individuals, institutuions, organizations, etc.) of the society and ultimately on the entire economy.  Public finance also analyzes the effectiveness of the policies aimed at certain objectives and consequently to the development of procedures and techniques for increasing the effectiveness of the policy.

Public Sector Finance mainly deal with proper allocation of resources with regards to the given budget constraint.

Public Finance generally deals with financial activities of the Government.  Both Public Fianance and Public Policy are important, as both are the main determinant in the policy matters of nation.

Financing of govenrment expenditures:

Govenrment expenditures are financed in two ways.
  1. Government revenue
  • Taxes
  • Non-tax revenue(revenue from government-owned corporations, sovereign wealth funds, sales of assets, or Seigniorage)
    2.   Governement borrowing
     
           The issue of how taxes affect income distribution is closely related to tax incidence, which examines the distribution of tax burdens after market adjustments are taken into account.  Public finance research also analyzes effects of the various types of taxes and types of borrowing as well as administrative concerns, such as tax enforcement.

Taxes

Taxation is the central part of modern public finance.  Tax is a financial charge or other levy imposed on an individual or legal entity by a state or functional equivalent of a state.  It could also be imposed by a subnational entity.  Taxes consist of direct tax or indirect tax.

There various types of taxes broadly divided into two heads - direct and indirect tax:

  • Stamp duty
  • Excise tax
  • Sales tax  (Value added tax (VAT), Services taxes)
  • Road tax - Vehicle excise duty
  • Gift tax
  • Duties
  • Corporate income tax on corporations
  • Wealth tax
  • Personal income tax
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