• • [ edit] • project Public finance (government finance) is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government.

Matters addressed by the subject include:

effects of government spending, taxation, and borrowing on households, businesses, and the economy
rules that should apply to the conduct of such activity
tax incidence (who really pays a particular tax)
voluntary exchange vs. government-mandated provision of goods and services
cost-benefit analysis of government activity
the role of government in affecting income distribution through taxes, government spending on goods, and transfer payments
efficiency and distribution effects of different kinds of taxes (for example, on income or consumption)
fiscal politics, modelling public spending and taxation as affected by interactions of self-interested voters, politicians, and bureaucrats. (Musgrave, 1987)
Government efficiency - how efficient are governments at obtaining their objectives? how much of their expenditure actually goes to where it is intended? what types of waste exist?
Scope of government activities - what do governments spend money on? what should governments spend money on? what can be left to markets? Why governments should be concerned with externalities, public goods.

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.

Public goods

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

Public choice and the political process

Government expenditures

Main article: Government spending

Government operations

Main article: Government operations

Government operations are those activities involved in the running of a 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.^[1] 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.^[2]

Income distribution

Main article: Income distribution

Income distribution - How will these government expenditures influence the incomes of one group relative to another group?various Government programs transfer wealth to people that have suffered a loss due to natural disaster. Social security transfers wealth from the young to the old. Engaging in a war transfers 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

Financing

Budgeted revenues of governments in 2006

Government financing can be achieved by seigniorage, taxes, or government borrowing. This area can involve right-financing, the income redistribution effects of the various types of taxes and types of borrowing, tax incidence, and the effect of taxes on market prices and efficiency.

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."^[3] 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."^[4]

Debt

Main article: Government debt

Governments, like any other legal entity, can take out loans, issue bonds and invest. Based on the taxing authority of the entity, they issue bonds such as tax increment bonds or revenue bonds. 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.

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 supranational institutions. 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.

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.

Notes

1. ^ Columbia Encyclopedia, Government, Columbia University Press
2. ^ See for example, The American Heritage Dictionary of the English Language, entry "Govern"
3. ^ Black's Law Dictionary, p. 1307 (5th ed. 1979).
4. ^ Id.

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 , 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.

External links

IMF--Dissemination Standards Bulletin Board-- Subscribing ... (see "fiscal sector")
Public Private Finance News
European Public Finance

• • [ e] General areas of finance
Financial markets • Investment management • Financial institutions • Personal finance • Public finance • Mathematical finance • Financial economics • Experimental finance • Computational finance

Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects.
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