Finance

What Are The Divisions And Functions Of Public Finance?

Do you want to know the divisions and functions of public finance? well in this article we are going to discuss all the divisions and the functions of public finance which you need to know.

To many individuals finance often is believed to be an extremely conservative and exciting field. To those who are employed in this field, it is a highly dynamic and stimulating area. In the future, there will be charges for both the sources and the forms of financing.

In the public sector finance is all about income and expenditure. how the government gets the money it spent.

What Is Public Finance?

Public finance is an aspect of economics that deals with government revenue and expenditure. A study of public finance involves a detailed analysis of the various sources from which the government derives its income (revenue), the items on which the government spends its money, and the impact of such government revenue sources and government expenditure on different aspects of the economy.

Public finance is related to the financing of state activities, and can narrowly be further defined as a subject that discusses the financial operations of the public purse or public treasury.

Boundaries of public finance subject have undergone repeated revisions in line with developments in state activities and corresponding economic philosophy. Accordingly, with time, the definition of public finance has expanded to cover ever-widening areas.

In the early days of capitalism, it was widely believed that the private sector was always more efficient than the public sector. It, therefore, provided a theoretical basis for lasses-faire. And by implication, almost all economic decisions were to be guided by the “invisible hand” of market forces of demand and supply. The role of government was not to interfere with the working of the market forces but to limit its activities to the barest minimum necessary and purely for the following:

1. Protect the society against internal destruction and ensure effective law and order prevailed.

2. Protect society against any foreign or external aggression.

3. Where the private sector found itself unable to create and run social overheads or infrastructural facilities for reasons of their commercial non-viability but they will otherwise be essential for efficient working, the economy, the state, was to step forward and assume the responsibility of creation and maintenance of such social goals or overheads.

The reason for states coming in is not that they are more efficient but because in the absence of the state or public sector, essential social overheads will not come into existence. The public sector economy is therefore an essential part of Africa’s development as a continent.

Divisions Of Public Finance

The subject matter of public finance can be divided into the following main portions:

1. The theory of public revenue
2. The theory of public expenditure
3. Federal finance
4. Stability, growth, and distributive justice
5. Financial administration

1. The Theory Of Public Revenue

This part of public finance deals with the sources of government or state income. It analyses the advantages and disadvantages of various sources of government revenue and the principles which should govern the choice between them. It covers also public taxation, non-tax revenues, public debt, and the creation of additional currency claims.

2. The Theory Of Public Expenditure

Government through public expenditure participates in and contributes to the financial flows of the economy and influences its supply and demand patterns. Through public expenditure, the government can stimulate the growth of the economy.

They can also influence and implement social programs and welfare packages as well as other policies of the government.

3. Federal Finance

This is funds injected into the economy by the federal government. It is a known fact that Nigeria is a country with federal, state, and local governments. Each division has a corresponding division of functions and resources.

Through statutory allocation from the federation account and internally generated revenue, each division can carry out activities that help in the growth of the economy.

4. Stabilization, Growth, And Distributive Justice

Stabilization of the economy through adequate monitoring of the price level, steady growth through injection of funds when needed, and the distribution of social and economic goods in a manner that shows equity and fair play.

5. Financial Administration

Financial activities of government involving issues of the public budget, its passing, implementation, auditing, and general financial administration.

Functions Of Public Finance

What Are The Functions Of Public Finance?

The major functions of public finance include the following:

1. Allocation Function

This function involves the provision of social goods or processes by which total resource use is divided between private and social goods.

Under the allocation function, the government tries to allocate resources available to all the geopolitical zones in an equitable manner, just, and to the benefit of the masses. Resources are scarce and government must allocate them to areas of need.

2. Distribution Function

This function involves the use of income and wealth to create a “just” state. Under the distribution function, the government adjusts the distribution of income and wealth using budget policy to ensure conformance with what society considers a “fair” or “just” state.

In a capitalist economy, income and wealth are very unequal among the people.

A mixed economy creates a situation where the government can use budget policy to allocate and reallocate capital, and economic and social goods which are part of the ingredients of wealth.

3. Stabilization Function

This function involves the use of budget policy as a means of maintaining high employment, a reasonable degree of price level stability, and an appropriate rate of economic growth with allowances for effects on trade and on the balance of payments.

Although these functional objectives differ, anyone tax or expenditure policy measure is likely to affect more than one objective. The problem, therefore, is how to design budget policy so that the pursuit of one goal does not void that of another.

Conclusion

Public finance is necessary because of scarce resources. Resources are the productive assets of a nation. They are the factors of production like land capital level and entrepreneurship. And this is because public finance is necessary. After all, the capital requirement of starting a project is far beyond what an individual or group can put forward.

In addition, public finance is responsible for social and economic goods which are bound in the country. This is why you need to know the functions of public finance.

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