There are three main functions of public finance as follows – THE ALLOCATION FUNCTION. This area studies methods of taxation, revenue classification, methods of increasing government revenue and its impact on the economy as a whole, etc. Public finance is the study of the role of the government in the economy. There are two types of goods in an economy – private goods and public goods. It also studies the policy impact on the social-economic environment, inter-governmental relationships, foreign relationships, etc. The main components of public finance include activities related to collecting revenueSales RevenueSales revenue is the income received by a company from its sales of goods or the provision of services. The budget is the annual forecast of the revenue and the expenditures so as to analyze the need for the debtor to invest the finance. Thanks. Public expenditure includes the infrastructure and other necessary expenses, and other expenditure includes the expenditure necessary to run the government like salaries, etc. eval(ez_write_tag([[580,400],'efinancemanagement_com-large-leaderboard-2','ezslot_2',121,'0','0']));Every economy goes through periods of booms and depression. It also aims at removing the inequality by proper allocation of resources i.e., providing the relief to the poor by collecting the taxes from the rich class people. The basic and utmost important component is the collection of the revenue by taxes, fines, charges, import duty, fees, etc. Sanjay Borad is the founder & CEO of eFinanceManagement. In contrast, public goods are non-exclusive. In public finance, primarily three measures are outlined to achieve this target –. Financial administration includes preparation, passing, and implementation of government budget and various government policies. Public finance helps the government in raising efficient funds for promoting the various infrastructural facilities in the economy like road, railways, medical and educational facilities, etc. The main co… This area of public finance explains the burden of public debt, why it is necessary and its effect on the economy. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. Everyone, regardless of paying or not, can benefit from public goods, for example – a road. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, Black Friday Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, Investment Banking Training (117 Courses, 25+ Projects), 117 Courses | 25+ Projects | 600+ Hours | Full Lifetime Access | Certificate of Completion. Share it in comments below. The government has to perform various functions such as maintaining law and order, defense against foreign attacks, providing healthcare and education, building infrastructure, etc. Private goods have a kind of exclusivity to themselves. Thank you very much for thisI really learnt a lot and it is self explanatory, Easy to understand and really helpful. Revenue does not necessarily mean cash received., making expenditures to support society, and implementing a financing strategy (such as issuing government debt). Public Finance is the way of managing the public funds, but it is not only limited to managing the public funds but also managing the other things like price stability, economic growth, issues like inequality of income, unemployment, human rights, etc. The allocation function deals with the allocation of such public goods. The term “public finance“ may be defined as the identification of specific financial relationships and functions running between public administration bodies and institutions (i.e. If you are not reading this article in your feed reader, then the site is guilty of copyright infringement. In simple layman terms, public finance is the study of finance related to government entities. It carries the utmost importance in the following ways –. eval(ez_write_tag([[580,400],'efinancemanagement_com-medrectangle-4','ezslot_5',117,'0','0']));Prof. Dalton classifies the scope of public finance into four areas as follows –. The list is endless. Helps in Increasing Export It helps in promoting the export from the country and thereby earning the foreign exchange. public sector entities – the state) as one party and in mutual interaction with other entities of the economic system as the other party (i.e.