PUBLIC FINANCE

Dr. Hend Morsy Al Brbry

Economic Department
Politics and Economics college
Beni Suef University
supplement
Chapter 1
INTRODUCTION
•Objectives of the lecture:
✓Define the concept of government
✓Define the concept of government institutions
✓Understand how to allocate between private and
government resources
✓Find out how government goods and services are
distributed
✓Learn about mixed economy markets and politics
✓Explanation of Circular Flow in a Mixed Economy
✓Understand the components of public finance
 Government

•Governments are organizations

formed to exercise authority over
the actions of persons who live
together in a society and to provide
and finance essential services.
 Political Institutions
•Political Institutions are rules and
generally accepted procedures
that evolve for determining what
government does and how
government outlays are financed.
Examples of Political Institutions

•Majority rule
•Representative government
The Allocation between Private and
Government Resources
Private
• Food
• Housing
• Cars
• Clothing
Government
• National Defense
• Public Schools
• Police
Figure 1.1 A Production-Possibility Frontier

Government Goods and

B

Services per Year

G2

G1 A

0 X2 X1 M
Private Goods and Services per Year
Distribution of Government Goods and
Services

•Nonmarket willingness to pay those prices

are no rationing:
•Prices and t applicable to goods such as
national defense.
 The Mixed Economy Markets and
Politics
•Pure Market Economy
•Virtually all goods and services are
supplied by for-profit private firms.
•Supply and demand determine the
price.
Figure 1.2 Circular Flow in the Mixed Economy
Goods & Services Goods & Services
Output
Market
Dollars Dollars

Income Support
& consumption subsidies production subsidies
Taxes, fees, charges Taxes, fees, charges
Households Government Services
Government Government Services
Firms

Dollars Input Dollars

Market
Resources Resources
How Much Government is Enough?

•The question of how much government

is enough is an important one in any
society. It is the tradeoff between public
and private goods. When government
gets bigger, it comes at the expense of
less private consumption.
COMPONENTS of PUBLIC FINANCE
•Public Revenue
•Public Expenditure
•Public Debt
•Financial Administration
•Economic Stabilization
 PUBLIC REVENUE
• The Income of the government through all
sources is known as public revenue
• This component deals with the different sources
and methods of raising the revenue to the
government.
• It also studies the classification of taxes, the
burden of taxes, effects, taxable capacity, etc.
 PUBLIC EXPENDITURE
• Public expenditure refers to the expenditure incurred
by the public authorities.
• This component deals with the principles and
problems related to the allocation of government
spending.
• It also studies about the classification of expenditure,
its effect, public expenditure policies of the
government, and trends in public expenditure.
 PUBLIC DEBT
•Public debt refers to the loans raised by
the government both internally and
externally.
•This component of public finance
studies the need for and methods of
raising public debt and problems related
to raising and repayment of public debt.
 FINANICIAL ADMINISTRATION
•Financial administration refers to the study
of different aspects of the public budget.
•It deals with the organizing and disbursing
of the finances of the state.
•The objective of framing budget, the
methods of framing it, sanctioning and
audit, etc., are studied under this.
 ECONOMIC STABLIZATION
•This component of public finance studies the
use of public revenue and public expenditure to
secure economic stability and growth.
•It includes various economic policies and
measures of the government that are used to
achieve full employment, balanced growth and
optimum use of resources.