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Public finance
From Wikipedia, the free encyclopedia
| Public finance | |
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| This article is part of the series: Finance and Taxation |
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| Taxation | |
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| Income tax · Payroll tax CGT · Stamp duty Sales tax · VAT · Flat tax Tax, tariff and trade |
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| Tax incidence | |
| Tax rate · Proportional tax Progressive tax · Regressive tax Tax advantage |
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| Economic policy | |
| Monetary policy Central bank · Money supply |
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| Fiscal policy Spending · Deficit · Debt |
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| Trade policy Tariff · Trade agreement |
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| Finance | |
| Financial market Financial market participants Corporate · Personal Public · Banking · Regulation |
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Public finance (government finance) is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government.
Matters addressed by the subject include:
- effects of government spending, taxation, and borrowing on households, businesses, and the economy
- rules that should apply to the conduct of such activity
- tax incidence (who really pays a particular tax)
- voluntary exchange vs. government-mandated provision of goods and services
- cost-benefit analysis of government activity
- the role of government in affecting income distribution through taxes, government spending on goods, and transfer payments
- efficiency and distribution effects of different kinds of taxes (for example, on income or consumption)
- fiscal politics, modelling public spending and taxation as affected by interactions of self-interested voters, politicians, and bureaucrats. (Musgrave, 1987)
- Government efficiency - how efficient are governments at obtaining their objectives? how much of their expenditure actually goes to where it is intended? what types of waste exist?
- Scope of government activities - what do governments spend money on? what should governments spend money on? what can be left to markets? Why governments should be concerned with externalities, public goods.
Contents |
- Internalization of externalities
- The Coase Theorem. The Coase theorem states that when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.
- Characteristics
- The demand for pure public goods
- Efficient output of a pure public good
- The free rider problem
Government operations are those activities involved in the running of a a state or a functional equivalent of a state (for example, tribes, secessionist movements or revolutionary movements) for the purpose of producing value for the citizens. Government operations have the power to make, and the authority to enforce rules and laws within a civil, corporate, religious, academic, or other organization or group.[1] In its broadest sense, "to govern" means to rule over or supervise, whether over a state, a set group of people, or a collection of people.[2]
- Income distribution - How will these government expenditures influence the incomes of one group relative to another group?various Government programs transfer wealth to people that have suffered a loss due to natural disaster. Social security transfers wealth from the young to the old. Engaging in a war transfers wealth to certain sectors of society. Public education transfers wealth to families with children in these schools. Public road construction transfers wealth from people that do not use the roads to those people that do (and to those that build the roads).
- Income Security
- Employment insurance
- Health Care
Government financing can be achieved by seigniorage, taxes, or government borrowing. This area can involve right-financing, the income redistribution effects of the various types of taxes and types of borrowing, tax incidence, and the effect of taxes on market prices and efficiency.
A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (for example, tribes, secessionist movements or revolutionary movements). Taxes could also be imposed by a subnational entity. Taxes consist of direct tax or indirect tax, and may be paid in money or as corvée labor. A tax may be defined as a "pecuniary burden laid upon individuals or property to support the government [ . . .] a payment exacted by legislative authority."[3] A tax "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any contribution imposed by government [ . . .] whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name."[4]
Governments, like any other legal entity, can take out loans, issue bonds and invest. Based on the taxing authority of the entity, they issue bonds such as tax increment bonds or revenue bonds. Government debt (also known as public debt or national debt) is money (or credit) owed by any level of government; either central government, federal government, municipal government or local government.
As the government represents the people, government debt can be seen as an indirect debt of the taxpayers. Government debt can be categorized as internal debt, owed to lenders within the country, and external debt, owed to foreign lenders. Governments usually borrow by issuing securities such as government bonds and bills. Less credit worthy countries sometimes borrow directly from commercial banks or international institutions such as the International Monetary Fund or the World Bank.
Most government budgets are calculated on a cash basis, meaning that revenues are recognized when collected and outlays are recognized when paid. Some consider all government liabilities, including future pension payments and payments for goods and services the government has contracted for but not yet paid, as government debt. This approach is called accrual accounting, meaning that obligations are recognized when they are acquired, or accrued, rather than when they are paid.
Seigniorage is the net revenue derived from the issuing of currency. It arises from the difference between the face value of a coin or bank note and the cost of producing, distributing and eventually retiring it from circulation. Seigniorage is an important source of revenue for some national banks.
- ^ Columbia Encyclopedia, Government, Columbia University Press
- ^ See for example, The American Heritage Dictionary of the English Language, entry "Govern"
- ^ Black's Law Dictionary, p. 1307 (5th ed. 1979).
- ^ Id.
- Anthony B. Atkinson and Joseph E. Stiglitz (1980). Lectures in Public Economics, McGraw-Hill Economics Handbook Series
- James M. Buchanan and Richard A. Musgrave (1989). Public Finance and Public Choice: Two Contrasting Visions of the State. MIT Press Google book excerpts
- Richard A. Musgrave (1959). The Theory of Public Finance: A Study in Political Economy.
- R.A. Musgrave (1987). "public finance," The New Palgrave: A Dictionary of Economics, v. 3, pp. 1055-60.
- Richard A. Musgrave and Peggy B. Musgrave (1973). Public Finance in Theory and Practice
- Joseph E. Stiglitz (2000). Economics of the Public Sector, 3rd ed. Norton.
- IMF--Dissemination Standards Bulletin Board-- Subscribing ... (see "fiscal sector")
- The IMF's Public Financial Management Blog
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