Define Public Finance and disuss the importance of Public Finance in the present times.
Define Public Finance and disuss the importance of Public Finance in the present times.
Meaning and Definition of Public Finance– for this see long question – 1 of unit – I
Importance of Public Finance
(1) Constant economic growth- To ensure constant economic growth, the government relies on fiscal tools like taxes, public debt, and expenditure, etc. These tools help to boost both the demand and supply of a product in the market.
(2) Rigid prices- Public finance has proved to be an essential tool used by the government to overcome the challenges of inflation and deflation. In the case of inflation, it minimizes the indirect taxes and expenditures along with; it also maximizes direct tax and capital expenditure. On the contrary to this, in the case of deflation, the policy is reversed.
(3) Economic balance- To maintain financial stability, utilization of fiscal tools is most popular among the governments of various nations. As a common practice, the government levies a high tax raising the internal public debt used to repay foreign debt. In the case of a recession in an economy, the complete procedure is reversed.
(4) Even distribution of resources- To reduce disparity in an economy, the most common tool used by the government is revenue and expenditure. In the case of high discrepancy, the government ensures to levy a high tax on income and valuable assets of wealthy people. Thus, the capital generated through this is used to support the disabled population living in the economy. To do so, the government is dedicated to launching various schemes like subsidies, allowances and different direct and indirect benefits.
(5) Proportionate development- For an outgrowing economy, it is imperative for the government to wipe out the gap between agricultural and industrial sectors.
To ensure this, the government needs to direct the funds towards personal interest of the population residing in the rural area.
(6) Organic evolution- All the revenue generated by the government is invested in the planning and development of the evolution of infrastructures. Thus, to ensure socio-economic reforms and infrastructural development, it becomes imperative for the government to rely on revenues and expenditures.
