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Encyclopedia > Public finance
Public finance
This article is part of the series:
Finance and Taxation
Taxation
Income tax  ·  Payroll tax
CGT ·  Stamp duty  ·  LVT
Sales tax  ·  VAT  ·  Flat tax
Tax, tariff and trade
Tax haven
Tax incidence
Tax rate  ·   Proportional tax
Progressive tax  ·   Regressive tax
Tax advantage

Economic policy
Monetary policy
Central bank  ·   Money supply
Gold standard
Fiscal policy
Spending  ·   Deficit  ·   Debt
Policy-mix
Trade policy
Tariff  ·   Trade agreement
Finance
Financial market
Financial market participants
Corporate  ·   Personal
Public  ·   Regulation
Banking
Fractional-reserve
Full-reserve  ·   Free banking
Islamic

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Public finance is a field of economics concerned with paying for collective or governmental activities, and with the administration and design of those activities. The field is often divided into questions of what the government or collective organizations should do or are doing, and questions of how to pay for those activities. The broader term (public economics) and the narrower term (government finance) are also often used. Not to be confused with Political economy. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Monetary policy is the process by which the government, central bank... In macroeconomics, money supply (monetary aggregates, money stock) is the quantity of currency and money in bank accounts in the hands of the non-bank public available within the economy to purchase goods, services, and securities. ... For other uses, see Gold standard (disambiguation). ... Fiscal policy is the economic term that defines the set of principles and decisions of a government in setting the level of public expenditure and how that expenditure is funded. ... Government spending or government expenditure consists of government purchases, which can be financed by seigniorage (the creation of money for government funding, at a heavy price of high inflation and other possibly devastating consequences), taxes, or government borrowing. ... This article is about budget deficits. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Government debt (also known as public debt or national debt) is... This article does not cite any references or sources. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        For other uses of this word, see tariff (disambiguation). ... A trade pact is a wide ranging tax, tariff and trade pact that usually also includes investment guarantees. ... The field of finance refers to the concepts of time, money and risk and how they are interelated. ... This article does not cite any references or sources. ... There are two basic financial market participant catagories, Investor vs. ... Domestic credit to private sector in 2005 Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... -1... For other uses, see Bank (disambiguation). ... Fractional-reserve banking refers to a financial system in which some fraction of the deposits can be used to finance profitable but illiquid investments. ... Economic policy Monetary policy Central bank   Money supply Gold standard Fiscal policy Spending   Deficit   Debt Policy-mix Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Regulation Banking Fractional-reserve Full-reserve   Free banking Islamic        Full-reserve banking is the banking practice in which the... Please wikify (format) this article or section as suggested in the Guide to layout and the Manual of Style. ... Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Sharia) principles and guided by Islamic economics. ...

Contents

Overview

The proper role of government provides a starting point for the analysis of public finance. Private markets, if certain conditions are met, will allocate goods and services among individuals efficiently (in the sense that no waste occurs and that individual tastes are matching with the economy's productive abilities). If private markets were able to provide efficient outcomes and if the distribution of income was socially acceptable, then there would be little or no scope for government. In many cases, however, conditions for private market efficiency are violated. For example, if many people can enjoy the same good at the same time (non-rival, non-excludable consumption), then private markets may supply too little of that good. National defense is one example of non-rival consumption, or of a public good. In economics, a public good is a good that is non-rival and non-excludable. ...


"Market failure" occurs when private markets do not allocate goods or services efficiently. The existence of market failure provides an efficiency-based rationale for collective or governmental provision of goods and services. Externalities, public goods, informational advantages, strong economies of scale, and network effects can cause market failures. Public provision via a government or a voluntary association, however, is subject to other inefficiencies, termed "government failure." An externality occurs in economics when a decision (for example, to pollute the atmosphere) causes costs or benefits to individuals or groups other than the person making the decision. ... In economics, a public good is a good that is non-rival and non-excludable. ...


Under broad assumptions, government decisions about the efficient scope and level of activities can be efficiently separated from decisions about the design of taxation systems (Diamond-Mirlees separation). In this view, public sector programs should be designed to maximize social benefits minus costs (cost-benefit analysis), and then revenues needed to pay for those expenditures should be raised through a taxation system that creates the fewest efficiency losses caused by distortion of economic activity as possible. In practice, government budgeting is substantially more complicated and often results in inefficient practices. < [[[[math>Insert formula here</math>The public sector is that part of economic and administrative life that deals with the delivery of goods and services by and for the [[government </math></math></math></math> Direct administration funded through taxation; the delivering organisation generally has no specific requirement to meet commercial... Cost-benefit analysis is a term that refers both to: a formal discipline used to help appraise, or assess, the case for a project or proposal, which itself is a process known as project appraisal; and an informal approach to making decisions of any kind. ... Budget generally refers to a list of all planned expenses. ...


Government can pay for spending by borrowing (borrowing), although borrowing is a method of distributing tax burdens through time rather than a replacement for taxes. A deficit is the difference between government spending and revenues. The accumulation of deficits over time is the total public debt. Deficit finance allows governments to smooth tax burdens over time, and gives governments an important fiscal policy tool. Deficits can also narrow the options of successor governments. Borrowing can refer to: The use of loanwords. ... This article is about budget deficits. ... For other uses, see Debt (disambiguation). ... Fiscal policy is the economic term that defines the set of principles and decisions of a government in setting the level of public expenditure and how that expenditure is funded. ...


Public finance is closely connected to issues of income distribution and social equity. Governments can reallocate income through transfer payments or by designing tax systems that treat high-income and low-income households differently. This graphic shows the distribution of gross annual household income. ... In political science and economics, a transfer payment is a payment of money from a government or any other organization to an individual, a group or another order of government for which no good or service is directly required in return. ...


The "Public Choice" approach to public finance seeks to explain how self-interested voters, politicians, and bureaucrats actually operate, rather than how they should operate.


Government expenditures

Main article: Government spending

Economists classify government expenditures into three main types. Government purchases of goods and services for current use are classed as government consumption. Government purchases of goods and services intended to create future benefits--- such as infrastructure investment or research spending--- are classed as government investment. Government expenditures that are not purchases of goods and services, and instead just represent transfers of money--- such as social security payments--- are called transfer payments.[1] Government spending or government expenditure consists of government purchases, which can be financed by seigniorage (the creation of money for government funding, at a heavy price of high inflation and other possibly devastating consequences), taxes, or government borrowing. ... National Income and Product Accounts (NIPA) use double entry accounting to report the monetary value and sources of output produced in a country and the distribution of incomes that production generates. ... National Income and Product Accounts (NIPA) use double entry accounting to report the monetary value and sources of output produced in a country and the distribution of incomes that production generates. ... In political science and economics, a transfer payment is a payment of money from a government or any other organization to an individual, a group or another order of government for which no good or service is directly required in return. ...


Government operations

Main article: Government operations

Government operations are those activities involved in the running of 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.[2] 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.[3] This article aims to describe the financial expenditure associated with the operations and processes of world governments of all levels. ... For other uses, see State (disambiguation). ... http://www. ... Secession is the act of withdrawing from an organization, union, or political entity. ... Revolutionary, when used as a noun, is a person who either advocates or actively engages in some kind of revolution. ... In general, the economic value of something is how much a product or service is worth to someone relative to other things (often measured in money). ... The word citizen may refer to: A person with a citizenship Citizen Watch Co. ... why can u change this im serious. ... For other uses, see Corporation (disambiguation). ... Religious is a term with both a technical definition and folk use. ... Plato is credited with the inception of academia: the body of knowledge, its development and transmission across generations. ... For other uses, see Organization (disambiguation). ... For other uses, see State (disambiguation). ...


Income distribution

Main article: Income distribution
  • Income distribution - Some forms of government expenditure are specifically intended to transfer income from some groups to others. For example, governments sometimes transfer income to people that have suffered a loss due to natural disaster. Likewise, public pension programs transfer wealth from the young to the old. Other forms of government expenditure which represent purchases of goods and services also have the effect of changing the income distribution. For example, engaging in a war may transfer 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

This graphic shows the distribution of gross annual household income. ... In political science and economics, a transfer payment is a payment of money from a government or any other organization to an individual, a group or another order of government for which no good or service is directly required in return. ...

Financing government expenditures

Budgeted revenues of governments in 2006
Budgeted revenues of governments in 2006

Government financing can be achieved by taxes, government borrowing, or seigniorage. How a government chooses to finance its activities can have important effects on the distribution of income and wealth (income redistribution) and on the efficiency of markets (effect of taxes on market prices and efficiency). The issue of how taxes affect income distribution is closely related to tax incidence, which examines the distribution of tax burdens after market adjustments are taken into account. Public finance research also analyzes effects of the various types of taxes and types of borrowing as well as administrative concerns, such as tax enforcement. Image File history File links Size of this preview: 800 × 351 pixelsFull resolution (1425 × 625 pixel, file size: 61 KB, MIME type: image/png)This bubble map shows the global distribution of budgeted tax and non-tax receipts in 2006 as a percentage of the top government (USA - $2,409... Image File history File links Size of this preview: 800 × 351 pixelsFull resolution (1425 × 625 pixel, file size: 61 KB, MIME type: image/png)This bubble map shows the global distribution of budgeted tax and non-tax receipts in 2006 as a percentage of the top government (USA - $2,409... -1... For other uses, see Debt (disambiguation). ... Seigniorage, also spelled seignorage or seigneurage, is the net revenue derived from the issuing of currency. ... Income redistribution, or the redistribution of wealth, is a political policy usually promoted by members of the political left, and opposed, or less strongly supported, by members of the political right. ... Taxes and subsidies have the effect of shifting the quantity and price of goods. ... First discussed by the Physiocrats in France, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. ...


Taxes

Main article: Tax

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."[4] 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."[5] Taxes redirects here. ... Look up Levy in Wiktionary, the free dictionary. ... A juristic person is a legal fiction through which the law allows a group of natural persons to act as if it were a single composite individual for certain purposes. ... For other uses, see State (disambiguation). ... http://www. ... Secession is the act of withdrawing from an organization, union, or political entity. ... Revolutionary, when used as a noun, is a person who either advocates or actively engages in some kind of revolution. ... Subnational entity is a generic term for an administrative region within a country — on an arbitrary level below that of the sovereign state — typically with a local government encompassing multiple municipalities, counties, or provinces with a certain degree of autonomy in a varying number of matters. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        The term direct tax has more than one meaning: a colloquial... The term indirect tax has more than one meaning. ... For other uses, see Money (disambiguation). ... Corvée, or corvée labor, is a term used in feudal societies. ...


Debt

Main article: Government debt

Governments, like any other legal entity, can take out loans, issue bonds and make financial investments. 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. Some local governments issue bonds based on their taxing authority, such as tax increment bonds or revenue bonds. Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Government debt (also known as public debt or national debt) is... For other uses, see Loan (disambiguation). ... For alternative meanings, see bond (a disambiguation page). ... Investment is a term with several closely related meanings in finance and economics. ... For other uses, see Money (disambiguation). ... Credit as a financial term, used in such terms as credit card, refers to the granting of a loan and the creation of debt. ... Central government or the national government (or, in federal states, the federal government) is the government at the level of the nation-state. ... A federal government is the common government of a federation. ... It has been suggested that this article or section be merged into Local government of the United States. ... Local governments are administrative offices that are smaller than a state. ... Tax Increment Financing, or TIF, is a tool for redevelopment and community improvement projects throughout the United States for more than half a century. ... A revenue bond is a special type of municipal bond distinguished by its guarantee of repayment solely from revenues generated by a specified revenue-generating entity associated with the purpose of the bonds. ...


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. Taxes redirects here. ... internal debt is the part of countries debts owed to creditors inside the country. ... For security (collateral), the legal right given to a creditor by a borrower, see security interest A security is a fungible, negotiable instrument representing financial value. ... A government bond is a bond issued by a national government denominated in the countrys own currency. ... A commercial bank is a type of financial intermediary and a type of 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. For the lodging, see Pension (lodging). ...


Seigniorage

Main article: Seigniorage

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. Seigniorage, also spelled seignorage or seigneurage, is the net revenue derived from the issuing of currency. ... For the tax agency in Ireland of the same name, see Revenue Commissioners. ... Face Value is the title of Phil Collins debut solo album, released in February of 1981. ... This article is about monetary coins. ... A £20 Ulster Bank banknote. ... Economic policy Monetary policy Central bank   Money supply Gold standard Fiscal policy Spending   Deficit   Debt Policy-mix Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Regulation Banking Fractional-reserve Full-reserve   Free banking Islamic        A central bank, reserve bank, or monetary authority is the...


The role of public spending and taxes

Externalities and government policy

  • 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.

An externality occurs in economics when a decision (for example, to pollute the atmosphere) causes costs or benefits to individuals or groups other than the person making the decision. ... This article or section is in need of attention from an expert on the subject. ...

Public goods

  • Characteristics

characteristics of public goods are non - excludability and transferable. Non excludabilty means the consumption of the goods is not limited on specific group of consumers, that is the satisfaction of the people watching fireworks display is not limited to the owners of the fireworks. The transferability feature of the public goods means that the consumption of an individual will not lead to deprive the other, that is, if a consumer is doing fishing on a pond, another person may do fishing as well on the same pond.

  • The demand for pure public goods
  • Efficient output of a pure public good
  • The free rider problem

In economics and political science, free riders are actors who consume more than their fair share of a resource, or shoulder less than a fair share of the costs of its production. ...

Public choice and the political process

In voting systems, Arrow’s impossibility theorem, or Arrow’s paradox, demonstrates that no voting system can possibly meet a certain set of reasonable criteria when there are three or more options to choose from. ... Public choice theory is a branch of economics that studies the decision-making behavior of voters, politicians and government officials from the perspective of economic theory, namely game theory and decision theory. ... The concept of right-financing was coined by English Political Economist Dr. Peter Middlebrook to highlight the importance of adopting the appropriate policy, institutional and financial support mechanisms to maximize sustainable returns on both public and private investments over time. ...

See also

Domestic credit to private sector in 2005 Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... Fiscal incidence is a concept within public finance, a sub-discipline within economics, that refers to the combined overall economic impact of both government taxation and expenditures on the real economic income of individuals. ... -1... Public economics is the study of the public sector and its influence on the economy and society. ... Public choice theory is a branch of economics that studies the decision-making behavior of voters, politicians and government officials from the perspective of economic theory. ... A government budget is a legal document that is often passed by the legislature, and approved by the chief executive. ...

Notes

  1. ^ Robert Barro and Vittorio Grilli (1994), European Macroeconomics, Ch. 15-16. Macmillan, ISBN 0333577647.
  2. ^ Columbia Encyclopedia, Government, Columbia University Press
  3. ^ See for example, The American Heritage Dictionary of the English Language, entry "Govern"
  4. ^ Black's Law Dictionary, p. 1307 (5th ed. 1979).
  5. ^ Id.

Blacks Law Dictionary, 7th edition Blacks Law Dictionary is the definitive law dictionary for the law of the United States. ...

References

  • 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.

Sir Anthony Barnes Atkinson (Tony Atkinson), FBA is a British economist and has been a Senior Research Fellow of Nuffield College, Oxford since 2005. ... Joseph Stiglitz (born February 9, 1943) is an American economist and a member of the Columbia University faculty. ... For other persons named James Buchanan, see James Buchanan (disambiguation). ... Richard Abel Musgrave (December 14, 1910 - January 15, 2007) was an American economist of German heritage. ... Richard Abel Musgrave (December 14, 1910 - January 15, 2007) was an American economist. ... Joseph Stiglitz (born February 9, 1943) is an American economist and a member of the Columbia University faculty. ...

External links

  • Moneyed Politicians
  • IMF--Dissemination Standards Bulletin Board-- Subscribing ... (see "fiscal sector")
  • The IMF's Public Financial Management Blog
The field of finance refers to the concepts of time, money and risk and how they are interelated. ... This article does not cite any references or sources. ... Investment management is the professional management of various securities (shares, bonds etc) assets (e. ... In financial economics, a financial institution acts as an agent that provides financial services for its clients or members. ... -1... Mathematical finance is the branch of applied mathematics concerned with the financial markets. ... Financial economics is the branch of economics concerned with resource allocation over time. ... The goals of experimental finance are to establish different market settings and environments to observe experimentally and analyze agents behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanism and returns processes. ... Computational finance (also known as financial engineering) is a cross-disciplinary field which relies on mathematical finance, numerical methods and computer simulations to make trading, hedging and investment decisions, as well as facilitating the risk management of those decisions. ...

  Results from FactBites:
 
Public Finance - MSN Encarta (1074 words)
Public finance is a field of economics concerned with paying for collective or governmental activities, and with the administration and design of those activities.
Public Finance, field of economics concerned with how governments raise money, how that money is spent, and the effects of these activities on the economy and on society.
Public finance studies how governments at all levels—national, state, and local—provide the public with desired services and how they secure the financial resources to pay for these services.
Bastable: Public Finance, Front Matter: Library of Economics and Liberty (1401 words)
Thus, the discussions on the classification of public expenditure, the theory of minimum sacrifice as the principle for distribution of the public burdens, the controversies as to the division of taxation between countries with a common revenue system, as well as those on the rue principles of local taxation, have been noticed.
These measures, when considered, as they should be, in connexion with the legislation on matters of economic policy of the past seven years, indicate a disposition on the part of the predominant political party to depart from the financial principles which have prevailed since 1860.
In the present work I have sought to temporarily supply this need by going over the whole field of Public Finance and presenting the results in a systematic form, so that a student may at least obtain a general knowledge of the leading facts and present position of this branch of political science.
  More results at FactBites »

 
 

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