Categories
Economics

PUBLIC FINANCE

Public finance is an aspect of economics which deals with government revenue and expenditure.

A 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 and government expenditure on different aspects of the economy.

OBJECTIVES OF PUBLIC FINANCE

  1. Revenue generation: Public finance assists the government to achieve an effective and efficient generation of revenue for the nation.
  2. Price stability: Public finance maintains stability in the prices of goods and services thereby preventing constant fluctuation and inflation and deflation that tend to destabilize the economy of a country.
  3. Provision of employment: Public finance is also used to create employment opportunities in the country.
  4. Satisfaction of Needs: public finance is also used to determine the needs of the people to enable government, meet those needs.
  5. Equitable Distribution of Income: Public finance also ensures that income accruing to a nation is equitably distributed to various sectors of the economy.
  6. Maintaining favourable balance of payments: Tariffs and other fiscal policies are used in maintaining favourable balance of payment of a country.

FISCAL POLICY

Fiscal policy is the use of government income and expenditure instruments to regulate or control the economy.

It is referred to the government plan of action concerning the raising of revenue through taxation and other means and the pattern of expenditure to be applied.

OBJECTIVES OF FISCAL POLICIES

  1. Economic development: A good fiscal policy can be used by government to ensure rapid economic development of a country.
  2. Revenue generation: Fiscal policy can equally be used to ensure that enough revenue is generated for government use.
  3. Creation of employment: A good fiscal policy can be used by government to provide job opportunities for the people by increase expenditure on employment generating ventures.
  4. Industrial development: Industrial growth and development can be achieved through a well packaged fiscal policy by the government.
  5. Income redistribution: government can use fiscal policy to ensure that the wealth of the country is equitably distributed.
  6. Control of inflation: Fiscal policy instruments can be used by government to control inflation in the country e.g. increased taxation on personal income, reduced government expenditure etc.

SOURCES OF GOVERNMENT REVENUE

  1. Taxes: Taxes include both direct and indirect taxes government generates income or revenue by taxing individuals and corporate bodies.
  2. Loans: Government can obtain loans from both internal and external sources, e.g. the World Bank, individuals or institutions within the country etc.
  3. Grants, Aids and Gifts: Government can receive grants, aids and gifts as revenue from wealth or developed countries.
  4. Licence: Government can generate revenue through licences e.g. driving licence.
  5. Rents and Rates: Earnings from water, properties, housing etc. owned by the government are sources of income to the government.
  6. Fees, Fines and Royalties: Government can generate revenue through court fees, miming companies, postage charges etc.
  7. Earning from government investment: government can also earn income from government owned business enterprises or from joint ventures.

Assignment (Post your answer and question title using the box below for evaluation and discussion)

State and explain five objectives of Fiscal Policies

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