Public Finance: Definition, Scope, Purpose

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Public finances – Every country definitely needs money to run something. The money earned by a country is a collection of various taxes, returns on investment, and government expenditures from the collection of income. Some expenses are health care, medical facilities, staff salaries, and others.

Income and expenses are levied to the public. Therefore, finance can be called public finance, where the role of society is large in terms of contribution. It deals with income and expenditure at any stage involving the public, whether at the state or central level. The management of public finances plays an important role in developing the economy because its growth depends largely on proper utilization.

What is Public Finance?

Public finance is the management of public funds in the country’s economy which plays the most important role in the development and growth of the nation, both at home and abroad.

Public Finance Objectives

Managing Public Needs

The main purpose of public finance is to manage basic needs of society such as food, boards, health, infrastructure, and education. All this becomes the responsibility of the government so that the basic needs of the community are met and contribute to economic development.

Economic Growth

Proper management leads to economic development leading to the growth of the nation.

Eliminating Inequality

Public finances also aim to eliminate inequality with proper allocation of resources, namely providing assistance to the poor by collecting taxes from the rich class.

Maintaining Price Stability

Public finances help control inflation with various packages and means for its development.

Other purposes

Fulfillment of the basic needs of the nation, generating jobs, maintaining the value of the currency in the international market.

Functions of Public Finance

There are several main functions of public finance as follows:

Allocation function

There are two types of goods in the economy: private goods and public goods. Personal items have a kind of exclusivity to themselves. Only those who pay for the item can benefit from the item, such as a car.

In contrast, public goods are non-exclusive i.e. everyone can use public goods and can get the benefits, for example, such as highways. The allocation function relates to the allocation of public goods.

Stabilization Function

Every economy goes through periods of boom and depression. This is the most normal and common business cycle leading up to this scenario. However, this period caused instability in the economy.

The purpose of the stabilization function is to eliminate or at least reduce these business fluctuations and their impact on the economy. Policies such as deficit budgeting during times of depression and budgeting surpluses during boom times helped achieve the economic stability needed.

The Importance of Public Finance in the Country

Here Are Some Reasons Why Public Finances Are So Important:

  • Proper management of public finances guarantees the growth of the nation.
  • Encourage investment through a variety of policies and packages.
  • Preparation, implementation, evolve with technological changes and policies framed by the government for broad economic development.
  • Helps maintain price stability, reduces inflation and unemployment.
  • It is also important in terms of the allocation of natural and human resources.
  • Scope of Public Finance

Public Revenue

Public revenue refers to government revenue. The government earns income in two ways: tax revenue and non-tax income. Tax revenues are easily recognizable, that is, taxes paid by the people of the country in the form of income taxes, sales taxes and much more.

On the other hand, non-tax income includes interest income from lending money to other countries, rent and income from government property, donations from world organizations and others.

Public Spending

Public spending is money spent by a government entity. Logically, the government will spend money on infrastructure, defense, education, health, for the growth and welfare of the country.

Public Debt

When public spending exceeds public revenue, the gap is filled by borrowing money from the public, or from other countries. This loan fund is public debt.

Financial Administration

Financial Administration is all public finance i.e. public revenue, public expenditure, and public debt. It includes the preparation, ratification, and implementation of government budgets and various government policies. It also studies the impact of policy on the socioeconomic environment, intergovernmental relations, foreign relations and much more.

Public Finance Revenue

  • Income tax (personal, corporate)
  • Property tax
  • Sales Tax
  • Value added tax (VAT)
  • Public Finance Expenditures
  • Health
  • work insurance
  • Pension
  • Education
  • Defense (military)
  • Infrastructure

What is State Debt?

State debt is debt issued or guaranteed by the government to a country. That is, the sovereign debt is a debt issued by the national government. This is certainly different from municipal debt where the debt is issued by the local government.

Just like the type of debt in general, the level of risk that exists in government bonds can be seen from the interest rate or coupon issued. The risk level will be higher if the coupon rate is getting higher.

Types of State Debt

Domestic State Debt

In order to fund domestic development, the government will then issue bonds so that they can be purchased by domestic investors. There are several types of investors who can afford bonds from the government, such as insurance companies, bank companies, to pension funds.

International State Debt

International debt is the debt part of a country where the buyer of the debt is an investor from abroad. The loan obtained along with the interest must be paid in the currency of the loan.

Financial Administration

Financial administration is one of the most important elements in a business, because it is closely related to the resources of a company or organization. But, some of us are also still many who do not understand the meaning of actual financial administration. Because, most of us consider that financial administration is a staff relate to payment activities.

Function of Financial Administration

There are several functions of financial administration in a company, some of which are as follows:

Investment Function

In this case, financial administration serves as a container use to store debits or company funds that can later be use for the needs of the company.

Shopping Function

The function of financial administration at this point signifies that the financial administration is given the confidence to make spending or discharge from a company that is useful for the needs of the company. In this case, the financial administration staff can spend the company’s funds wisely.

Profit Sharing Function

Financial administration will be given the trust to make and determine the rules in the matter of profit sharing obtain by the company.

Fundraising Function

In general, the function referr to at this point is to provide funds for the company, so that the company is able to meet its needs. This can be interpret as finding investors or sponsors for the company.

The Purpose of Managing Public Needs

Eliminating Inequality

To overcome the social economic inequality that has occurr so far, the government launch a major program of Equitable Economic Policy. This policy is affirmative action to prevent negative reactions to the market, to the democratic system, while preventing friction due to social conflicts in society.

Economic Development

Economic development is the process of increasing per capita income and total income by taking into account the increase in population. It can also be interprete as activities carry out by the state to develop economic activities and the standard of living of its citizens.

Economic Development Goals

Every independent country wants prosperity for its people. The ideals of prosperity of this people can be realiz by development. Development itself is a continuous process of change towards improvement. Of course, in all areas of life, economic development is no exception.

Increase Distribution Availability

The first goal of economic development is to increase the availability or expansion of the distribution of basic goods for life. Be it food, clothing, boards, education, health to safety.

Improving Living Standards

The goal of further economic development is to improve living standards. This includes increasing income, improving the quality of education, adding the provision of employment to increasing attention to human and cultural values. In addition to improving the welfare of society materially, economic development is also able to grow the identity of the person and the nation.

Expanding Economic and Social Choices

The latter goal of economic development is to expand the range of economic and social options for each individual and nation. Of course overall by freeing themselves and the nation from the attitude of dependence on others or other nations.

Also read financial independence:

Conclusions About Public Finance

Public finance is a way of managing public funds. However, it is limit to the management of public funds and other things such as price stability, economic growth, income inequality, unemployment, and human rights.

Managing public finances requires proper planning for resource allocation, and controlling unfavorable situations by creating fiscal policies, and budgets to ensure the nation’s growth at large. So the article I can make about public finances hopefully useful, thank you.

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