Public Finance

Public Finance is a study of income and expenditure or receipt and payment of government. It deals the income raised through revenue and expenditure spend on the activities of public authorities. The word public means all the members of the community and the term finance is money resources i.e. coins. But public is collective name for individual within an administrative territory and finance. On the other hand, it refers to income and expenditure. Thus, public finance in this manner can be said the science of the income and expenditure of the government.
Importance of Public Finance
There is great socio-economic significance of public finance, both in developed and developing countries. In developed countries, price-stability and full employment are the main economic goals of public finance. In developing countries, rapid economic development through capital formation and creation of infrastructure are the important goals of public finance operations. Socially equitable distribution of income, reduction of inequalities in income and wealth, helping the poor to raise their real income are some important functions of public finance operations. The importances of public finance are as follows:
a) To increase the rate of saving and investment
Most of the people spend their income on consumption. Saving is very low so the investment is also low. The government can encourage the saving and investment.
b) To secure equal distribution of income and wealth
Unequal distribution of income and wealth is the basic problem of the under developed countries. The rich are getting richer and richer while the poor are becoming poorer. So for the equal distribution of income and wealth there is need of government.
c) Implementation of planning
Under democratic planning fiscal policy plays crucial role as financial plan is as much important as physical plan and the implemention of the financial will obviously depend upon the uses of fiscal measures.
d) Infrastructure building
Public finance helps to build up well developed physical and institutional infrastructure.
e) To promote backward sectors
To promote the backward sectors there is need of government which can provide subsidy and reduces tax.

Sources of Public Borrowing
There are two major sources of public borrowing internal and external.
Internal Borrowing:
The fund which the government raises in the form of loan domestically is known as internal borrowing. Sources of internal borrowing are central bank, commercial banks, other financial and non financial institution and individual and private institution.

External Borrowing:
External borrowing refers to the loan taken from foreign government and organization such as World Bank, Asian Development Bank, World Trade Organization (WTO) etc.