Meaning of public finance
The financing of government is a universal aspect in which every person receives some benefit from the services of the government and also makes some contribution to them. Most of the governments of the world are entering into various types of public projects. At present, government business is emerging as the biggest business. The total income and total expenditure of the government is much broader than that of any individual in the country. Public expenditure is not only large in quantity but is also growing at a rapid rate. This increase in expenses is happening due to the expansion in the work of the government. Revenue systems have influenced the economic life of man and with its help, it becomes possible to bring desired socio-economic changes in the economic life of the country. To curb black money and terrorism, demonetization was done from November 8, 2016, so that black marketing and black money can be controlled on a large scale and terrorism cannot be encouraged.
Revenue in itself is not a new subject, rather it has been studied since ancient times. Today this subject has emerged as a science. In the ancient autocratic system of governance, due to the limited functions of the state, the format of the details of the state's income and expenditure remained very small. On the contrary, in today's democratic governance system, after the establishment of the welfare state, the state has entered human life so deeply and with the increase in the functions of the state, its expenditure structure and sources of income have also increased. The wave of economic planning and planned development has completely changed the functioning of the states. With the increasing activities of the state and the resulting increasing income and expenditure, the need for proper management of the means was felt. As a result, today revenue and its problems are being studied on a scientific basis.
Concepts and definitions of public finance
Revenue is an important part of economics, which refers to "the centralization of complex problems around revenue and expenditure in the process of government." Pro. Shiraz thinks that "Revenue is the study of those principles according to which the funds of government officials are collected and spent." The definitions of revenue can be studied in three ways-
(a) Very detailed definitions
The following definitions are included in this category-
(1) C.F. According to Bastable, "Revenue is related to the income and expenditure of the public authorities of the state, their mutual relations and financial administration and control."
(2) According to Adams, Prof. Adams calls it "the science of finance and describes it as the research of public expenditure and public income."
(3) Mrs. U. Of. According to Hicks, "The main subject of revenue is to study and examine the methods by which the government arranges for the collective satisfaction of the demands of the institution and obtains the necessary funds to fulfill this objective."
(4) Prof. According to Findlay Shiraz, "Revenue is the study of such principles which are related to the expenditure and receipt of funds of public authorities."
(5) According to Dr. Dalton, "Under revenue, the income and expenditure of public authorities and their adjustment with each other are studied. The principles of revenue are such general principles which are related to these subjects."
Criticisms
The main defects of these definitions are as follows-
(i) Public Institutions- Public institutions include only public companies, public educational institutions, etc., whereas only the activities of the state are included in the revenue.
(ii) Revenue is an uncertain science- If all types of income and expenditure are included in revenue, then revenue will become an uncertain science.
(iii) The word means is not clear- Bastable, etc. Economists have used the word 'means', but the word means is unclear. The means are economic and non-economic, but it is not clear which means should be given attention.
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(b) detailed definitions
Detailed definitions include the following-
(6) According to Plehn, "Revenue is the science that describes those actions of the politician, which are used in obtaining and using monetary resources for the proper purposes of revenue."
(7) A. According to M. Smith, "Research into the principles and nature of state expenditure and state income is called revenue."
(8) According to Lutdha, "The study of provision, conservation, and expenditure of resources necessary for completing public or government works is the subject of revenue."
(9) According to Taylor, "Revenue is the behavior of public finance in an organized form under the government institution. Only government finance is studied in it."
Criticisms
The main shortcomings of this category of definitions are as follows-
(i) Creating uncertainty- These definitions include the study of all income and expenditure and monetary and non-monetary revenues of the government. The study of non-monetary income and non-monetary expenditure creates uncertainty.
(ii) Narrow definition- The definitions of this category are narrow because only the income and expenditure of the state are included in the area of revenue.
(iii) The meaning of income and expenditure is uncertain- In these definitions the meaning of income and expenditure is uncertain. The income and expenditure of every state are monetary and non-monetary which are studied in revenue.
(c) Narrow or narrow definitions
(10) According to Mehta and Aggarwal, "Revenue includes the study of monetary and credit resources of the government."
However, from the theoretical point of view, it is difficult to differentiate between monetary and non-monetary income and expenditure. From a practical point of view, proper study can be possible only by establishing differences between them.
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Scope of public finance
The field of public finance includes its (i) subject matter and (ii) nature.
Contents: The subject matter of public finance is divided into five parts-
- income
- expenditure
- loan
- Fiscal system and
- Fiscal policy.
It is both science and art in nature. Dalton thinks that "The main division in public finance is between public income and public expenditure, which form two equal branches of the subject. Due to giving rise to special problems, public debt is considered as a separate branch. Is." At present, all economic activities are studied in terms of revenue. Harold Grobs thinks that "Public finance is that branch of research which is related to the income and expenditure of the government. At present, it has four parts - public finance income, public finance expenditure, government debt, and problems related to fiscal system, such as - Fiscal management and fiscal policy." Dalton's opinion is that "Public finance lies on the border of economics and political science."
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Nature of public finance
Various views have arisen regarding the nature of public finance. Seligman and his followers think that public finance studies the problems of public expenditure, public income, and public debt without keeping in mind the idea of public welfare. According to the socio-political theory, to achieve maximum benefits in society, the state must transfer a part of the income of the rich to the poor, and with the help of tariff policy, unequal distribution of wealth has to be removed. The founders of New Economics believe that even in capitalist economics, to improve the country's economy, the state regulates consumption with the help of tariff policy. Keynes described functional finance. The state makes such tariff adjustments that it is possible to increase the flow of investment.
Various Theories about the Nature of Public Finance
The following are the main principles regarding the nature of public finance:
(1) Theory of Activating Finance- According to this theory, national income increases only due to savings and investments. Poverty is found in the country due to lack of national income. Therefore, by making optimum use of the country's resources to eliminate poverty, all investments can be used effectively the national income can be increased and the country can be made prosperous.
(2) Theory of New Economics- This theory was first propounded by Keynes and Hanson. In this, it is considered necessary to bring stability to consumption and to regulate it appropriately, compensatory action should be taken through fiscal policy, only then the progress of the state can be possible. At present, more attention is given to public finance than private finance. In a capitalist economy, this work is done by the state.
(3) Pure Theory of Public Finance- This theory was propounded by Seligman. This theory considers the problems of public expenditure and public debt neutrally. There is no insistence that the objective of tariff policy should be to remove inequalities of wealth.
(4) Socio-Political Theory- The names of Wagner and Edgeworth are prominent among its supporters. According to this principle, the objective of tariff policy should be to transfer wealth from the rich to the poor so that maximum social welfare can be increased in society.
(5) Theory of Functional Finance- Lerner has named the Keynesian ideology of public finance as Functional Finance. It refers to the method in which tariff measures are evaluated based on operational performance. Through operational finance, efforts are made to increase aggregate demand by influencing the quantity of money by reducing public finance expenditure and public debts.
(6) Classical Theory of Public Finance- According to the theory, it is believed that supply itself creates its own demand, hence there will never be unemployment or over-production. This envisages full employment. Due to the assumption of full employment, the state is unable to increase its economic activities.
(7) Musgrave's Views on the Theory of Public Finance- According to Musgrave, the theory of public finance can be kept in two forms -
(a) Rules related to making the public economy efficient and Formulating principles and
(b) Developing such principles that can gain acceptance as to why the existing policy is followed and which policies will be followed in the future. Musgrave thought that the purpose of public finance was related to the first form and its second form was given only temporary importance.
Importance of public finance
Till the 19th century, revenue science was living an anonymous life, because in that period unrestricted policy was prevalent and the scope of government was limited only to internal and external security. From the beginning of the 20th century, the wave of state intervention began to weaken and with it, the possibilities of state entry into economic life began to increase.
At the end of the 19th century, the German economist Wagner propounded the 'law of increasing activities of the state'. Dalton thinks that "Public finance is the science of providing the greatest comfort to the society by the government." According to Shiraz, "The revenue of the state is the state, and the success of every undertaking is based on financial funds." James Wilson thinks that "Finance is not just arithmetic, finance is a great policy. Good government is not possible without good finance, and good finance is not possible without good government." Lerner thinks that "The main objective of public finance measures is to mold economic life in desired ways within a definite framework." In the present times, the importance of public finance has increased considerably.
(A) Importance in the social field
The main reasons for increasing activities in the state are stated as follows:
(1) Socialist form of life- The sentiments of the people have changed from capitalism to socialism and the activities of the state have continuously increased. Now even in capitalist countries, the government has started carrying out such tasks that are considered appropriate in a socialist state. It includes things like old age insurance, illness insurance, social security, relief to the poor, etc. which are considered to be the functions of the state at present.
(2) Increase in activities- In ancient times, protection of life, protection from foreign invasion, etc. were considered the functions of the state, but with the increase in social life, there has been an increase in the activities of the state which include internal security, trade and Regulation of commerce, etc. are considered important. In ancient times, doing business by the government was considered unethical, which is why the government did not do business. At present, every state performs many functions. According to Mrs. Hicks, "There is no exaggeration in the statement that as much as the economic development of a country depends on the industriousness and skill of its artisans and the bravery of its soldiers, all its public finance related matters depend on the successful resolution of the questions. Are." Economists like Robert Owen, John Mill, and Sismondi explained the actions of the state by explaining the effects of free trade policy. After the Depression of 1929 and the publication of the employment theory, the trade policy ended. There were gradual changes in the idea of the state and the functions of the state and it was accepted that the objective of the state is to maximize the welfare of the entire society. It is the endeavor of the governments of developed countries that the level of full employment should be achieved by maintaining the appropriate level of employment. These governments remain busy with programs to increase national income and make continuous efforts for development.
(B) Importance in economic life
The effects of tariff actions on economic life are very important, which are as follows-
(1) Impact on economic life- In ancient times, the study of public finance was limited to obtaining funds to complete government works. But in the present time, it is being realized that the activities of public finance have an impact on the economic life of the people. It is now believed that through taxation, the distribution of wealth and income can be improved and social evils can be prevented. Spending public expenditure on essential services like transport and power will boost production in the country. On the contrary, taxation is definitely resorted to to increase production and investment in the public sector. By imposing heavy taxes on harmful goods, their consumption is reduced.
(2) Increasing use of currency and credit- In ancient times, currency was used only in limited quantities. Many services were provided free of cost by the state and due to the spirit of cooperation promoted by the state, people used to help each other. But in the present times, there has been an increase in the use of money and credit in every sphere of life, due to which the work of the state has also increased and it has become necessary to use money and credit.
(3) Economic ownership- It has become natural to have an ownership stake in the economic activities of many nations. Almost every nation experiences booms and busts, which increases uncertainty and misery and leads to losses in trade and commerce. Efforts can be made to bring economic stability to the country through revenue activities.
(4) Reducing pressures- Taxation and public expenditure policies always help in reducing economic pressures in the country and stability is achieved in the country by reducing economic pressures.
(5) Stabilizing prices- During the boom period, heavy taxation and arrangements for taking loans by the government reduced the purchasing power of the people. On the contrary, in times of recession, the public gets more purchasing power by spending more money in the form of government expenditure. In this way, prices of commodities can be kept stable at one level during both boom and lean periods.
(6) Determining national income- The tariff policies of the government always determine the national income and the general level of economic activities of the nation. These policies are considered an essential part of revenue.
(7) Rapid economic development- Semi-developed nations of the world want rapid economic development of the country in minimum time. This development can happen based on the financial policies of the government. Rapid economic development can be possible only through government intervention.
(8) Attainment of full employment- Keynes thinks that to achieve full employment in the country, the government of every nation needs to do the work, the study of which can be possible only under public finance. The problem of unemployment in the country can be solved only by providing full employment opportunities. In reality, achieving full employment in any country is just a fantasy, yet every country keeps trying to achieve it.
(9) Increase in economic activities- With the help of public finance activities, the government makes successful efforts to increase production by motivating people towards productive activities by providing good roads, railways, power, and facilities for other productive activities in the country.
(10) Importance in economic planning- With the success of public finance activities, the tasks of economic planning can be successfully executed in the country, which can increase the economic life and standard of the country.
(C) Importance in production, employment and price
The following are included in these-
(1) Production- Revenue policy has played an important role in determining production. To increase production, the government itself establishes industries, especially when the private sector remains indifferent. Production can also be increased by providing financial assistance. Taxes can be imposed on luxury goods to reduce their production.
(2) Unemployment- Efforts are made to remove unemployment through revenue. Traditional economists believed in the condition of full employment in the economy. Keynes gave importance to an increase in employment through effective demand. To increase effective demand, the government can (i) increase public expenditure, and (ii) reduce taxes.
(3) Price- Changes in prices disturb the economic life of the country. Government tax policy and price policy help in curbing these high prices. In developing countries, fiscal instruments are used only to control prices.
(D) Importance in the distribution of income and wealth
A variety of fiscal measures can be used to reduce unequal distribution. To reduce inequality, (i) the highest income and wealth can be reduced, and (ii) the lowest income can be increased.