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Adjustments in the allocation of resources

Meaning of Public Finance

Public finance is related to the financing of the state activities and a narrow definition of the public finance would try to say that public finance is a subject which discusses the financial operation of  the fiscal or of the public treasury.

Nature of Public Finance

Public finance has been held as a science which deals with the income and expenditure of the government’s finance. It has been held as a study of principles underlying the spending and raising of funds by the public authorities. The various theories which form the basis of the collection; maintenance and expenditure of the public income constitute the subject and matter of finance.

Scope of Public Finance

The scope of public finance is not just to study the composition of public revenue and public expenditure. It covers a full discussion of the influence of government fiscal operations on the level of overall activity, employment, prices and growth process of the economic system as a whole.
According to Musgrave, the scope of public finance embraces the following three functions of the
government’s budgetary policy confined to the fiscal department the:

  • allocation branch,
  • distribution branch, and
  • stabilization branch.

These refer to three objectives of budget policy, i.e., the use of fiscal instruments to secure:

  • Adjustments in the allocation of resources
  • Adjustments in the distribution of income and wealth, and
  • Economic stabilization.

Public finance is composed of the following constituents public:

  • Expenditure
  • Revenue
  • Debt
  • ( Financial ) administration

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