Public Finance

The following are the main sources of Public Revenue:- 1. Tax: A tax is a compulsory levy imposed by a public authority against which tax payers cannot claim anything. It is not imposed as a penalty for only legal offence. The essence of a tax, as distinguished from other charges by the government, is the absence of a direct quid pro quo (i.e., exchange of favour) between the tax payer and the public authority. 2. Rates: Rates refer to local taxation, i.e., taxation levied by (or for) local rather than central government. Normally rates are proportional to the estimated rentable value of business and domestic properties. Rates are often criticised as being unrelated to income. 3. Fees: Fee is a payment to defray the cost of each recurring service undertaken by the government, primarily in the public interest.   4. Licence fee: A licence fee is paid in those instances in which the govern­ment authority is invoked simply to confer a permission or a privilege.   5. Surplus of the...

 Public Expenditure has far reaching effects on production, employment and distribution in a country. Some of them are:- (I) EFFECTS ON PRODUCTION (A) On Social Insurance:- Public Expenditure on social insurance benefits tends to increase the purchasing power of workers indirectly. When these facilities are provided by the state, the workers are not required to spend on them, thereby increasing their purchasing power. The money so saved is used to increase their standard of living which in turn increases their efficiency and production. (B) On Education and Public Health:- Public Expenditure on education and public health has direct welfare effects on society. Expenditure on education is regarded as investment in human capital because it helps in skill formation and thus raises the ability to work and produce more. Similarly, public health is also another form of investment in human capital. Healthy workers, who are free from diseases, work more and raise production.   (C...

The reasons for the growth of public expenditure in India are: (i) Development Programmes: Most of the underdeveloped countries have initiated various programmes of economic development i.e. provision of infrastructure of the economy such as transport, communication power etc. This has led to growth of public expenditure. (ii) Growing trend of Urbanisation: With the spread of urbanization, public expenditure has increased in modern times. Urbanization has led to increase in Government expenditures on civil administration, education, public health, water supply, parks etc. (iii) Rise in Price-level: As a result of the rise in the price-level, the public expenditure has gone up everywhere. The reason is that like the private individuals the Government also has to buy goods and services from the market at higher prices. (iv) Increase in Population: As a result, the Government has to incur great expenditure to meet the requirements of increasing population. In fact, the public expenditure ...

  The following canons of public expenditure have been laid down by Prof. Findlay Shirras: 1.  Canon of Benefit: This canon suggests that every public spending must ultimately be used for the cause of social benefit — general well-being of the common people. It, thus, implies that State spending should confer benefits on the community at large rather than on an individual group or section. It means public funds should be spent in such directions which pursue common interest, and promote general welfare. 2.  Canon of Economy: It implies that public expenditure should be incurred carefully and economically. Economy here means avoidance of extravagance and wastages in public spending. Public expenditure must be productive and efficient. Hence, it must be incurred only on very essential items of common benefit, without duplication, in a way that involves minimum cost. An efficient system of financial administration is, therefore, very essential in any country. 3.  Canon ...