Nature and Scope of Public Finance

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
• 2) Theory of Public Expenditure – Problems related to
the govt. expenditure are studied in this branch of public
3) Financial Administration – This branch of public finance studies
the income and expenditure of the financial administration of the
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
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
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 devlopment and 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
It is clear from the above account that study of public finance is of
utmost importance in the modern times.

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