PUBLIC

FINANCE
Group 7
Mimi Ann Tseng
Jestin Lavalle
Nneko Jun Tan
Ma. Radela
Eclarinal
Meljomar Belen

Public Finance Defined

Public finance is about the taxing and spending
activities of the government.
Also known as public sector economics or public
economics.
Focus is on microeconomic functions of
government polices that affect overall
unemployment or price levels are left for
macroeconomics.
Scope of public finance unclear government has
role in many activities, but focus will be on taxes
and spending.

Public Finance and Ideology

How should a government function in economic
sphere?
Organic view community stressed above
individual. Goals of society set by the state.
Mechanistic view government is a contrivance
created by individuals to better achieve their
individual goals. Individual, not group, is at center
stage.

Government at a Glance
Legal framework
Federal government
No real constraints on spending in Constitution
Taxes must come originate in House of
Representatives.
Equal tax rates across states.

Can run budget deficits

State and local government

Can impose spending / taxing restrictions on
itself.
Many states cannot run budget deficits.

SCOPE of

PUBLIC

SCOPE OF PUBLIC
FINANCE
The

is not just to study the composition of public

revenue and public expenditure. It covers a full
discussion of the influence of government fiscal
operations on the level of overall activity,
employment, prices and growth process of the
economic system as a whole.

According to Musgrave ,
the

Scope of Public Finance

embraces three functions of the governments

budgetary policy confined to the fiscal department:
(i) The Allocation Branch,
(ii) The Distribution Branch, and
(iii) The Stabilisation Branch.
These refer to three objectives of budget policy, i. e., the
use of
fiscal instruments:
(i) To secure adjustments in the allocation of resources,
(ii) To secure adjustments in the distribution of income and
wealth, and
(iii) To secure economic stabilisation.

THE SCOPE OF PUBLIC FINANCE

MAY BE DIVIDED INTO FOUR PARTS:

Public Debt
Public Revenue
Public Expenditure
Financial
Administration

PUBLIC DEBT

deals with the study of the causes and

methods of public loans as well as public
debt management.

The problems related to the raising and

repayment of public loans are studied
under this part.

It is in this division where we examine the

borrowing policy of the government and
indicate the directions in which
improvements could be made.

PUBLIC REVENUE

deals with the

method of raising
funds and the
principles of taxation.

Thus, within the purview of public revenue,

we take up the classification of public
revenue, canons and justification of taxation,
the problem of incidence and impact of
taxation, and shifting of taxes, effects of
taxation, etc.

Taxation is the main body of this division.

PUBLIC EXPENDITURE

is the end and aim of the

collection of state revenues

deals with the principles and problems relating to

the allocation of public spendings.

Here we study the fundamental principles governing

the flow of public funds into different channels;
classification and justification of public expenditure;
expenditure policies
of the government
and the measures
adopted for general
welfare.

FINANCIAL ADMINISTRATION

Concerned with the organisation and functioning of the

government machinery responsible for performing the
various financial function of the state.

Budget is the master financial plan of the government.

It brings together the estimates of anticipated annual

revenues and expenditures, implying the schedule of
government activities to be undertaken and the means
of financing these activities.

SIGNIFICANCE
of

PUBLIC
FINANCE

SIGNIFICANCE OF PUBLIC FINANCE

a.
b.
c.
d.
e.
f.
g.
h.
i.
j.

k.

Taxation
Protection of Infant Industries
Provision of Public Goods
Side Effects of a Market Econom
Redistribute of Income
Equity
Subsidies and grants
Optimum Utilization
Economic Planning
Providing Employment
Opportunities
Market failures

SIGNIFICANCE OF FINANCIAL
OPERATIONS OF THE GOVERNMENT
The financial operations of public finance can be effectively
utilised to achieve various social and economic goals:
a. Public finance can serve the interests of economic policy. Government
spending can stimulate private sector, e.g. expenditure on industrial
estates.
b. Public finance is designed to bring out an appropriate allocation of
productive resources so that national product is maximized and income
distributed equitably.
c. Public finance can be instrument of social policy. Through fiscal
operation, if national income is equitably distributed, harmony between
different classes of people can be achieved.
d. Financial operations can improve general welfare if major public
spending is used for welfare projects.
e. Governments financial operations have a unique significance in
developing economies like India where public expenditure is devoted to
promote capital formation and investment.

SIGNIFICANCE OF FINANCIAL
OPERATIONS OF THE GOVERNMENT
The financial operations of public finance can be effectively
utilised to achieve various social and economic goals:
f. Policy of taxation and public expenditure can affect the growth and pattern
of production.
g. If appropriately designed, fiscal operations can break the vicious circle of
poverty in a developing economy or poverty in the midst of plenty in a
develop economy.
h. Fiscal operations can check trade cycles and lead to economic
stabilization.

Issues and
Problems of
Public Finance

 Regressive Taxation

A tax that takes a larger percentage from lowincome people than from high-income people. A
regressive tax is generally a tax that is applied
uniformly. This means that it hits lower-income
individuals harder.

 Public Borrowing

Public borrowing is the total amount of

money that has been borrowed by the
government.

Hindrance to mobilization of domestic

financial resources

Domestic resource mobilization generation

of savings from domestic resources and
their allocation to socially productive
investments.

 Inefficient tax-administration

Tax administration should be effective in the

sense of ensuring high compliance by
taxpayers, and efficient in the sense that
administrative costs are low relative to
revenue collected.

 Tax Incentives

Deduction ,exclusion, orexemptionfrom atax

liability, offered as anenticementto engage in
a specifiedactivity (such
asinvestmentincapital goods) for a
certainperiod.

tax incentives are defined as all measures that

provide for a more favorable tax treatment of
certain activities or sectors compared to what
is granted to general industry

 Limited external sources of

public financing

Funds that firms obtain from outside of the

firm.

trade creditis also considered external

financing as areaccounts payable,
andtaxesowed to thegovernment.

 Understanding on social
development

Is an encompassing concept that refers to a

dual focused, holistic, systematic,
ecologically oriented approach to seeking
social advancement of individuals as well as
broad-scale societal institutions and
maintains that it is a process of planned
social change designed to promote the wellbeing of the population as a whole

Public Finance
The FORMULATION OF FISCAL
POLICY lies at the dead center of
the democratic government.
-E. Pendleton Herring, 1938

Fiscal Policy
Fiscal

policy refers to policies on

taxation,
and
other
revenue,
expenditure, and borrowings which is
intended to promote the stabilization
and development of the economy.

Now

a
days,
FISCAL
AND
MONETARY POLICY is used as a
single concept though it has a different
aspect of economic policy but have
related impact.

Fiscal Policy
Fiscal

and monetary policy have been

crafted in response to requirements of
stabilization, and subsequently, and in
accordance with the structural
adjustment programs (SAPs) negotiated
by the International Monetary Fund (IMF).

On

the other hand, monetary policy is

generally understood to be that which
influences the level of money supply in
the economy.

Fiscal Policy
The

formulation of fiscal and

monetary policy made a huge
part of economic and social
development but not limited to
socio-cultural and political.

Philippine Policy of Public Finance

FIELDS OF PUBLIC FINANCE

Taxation
II. Government Expenditure
III. Budget Process
IV. Public Debt
I.

I. TAXATION
- act of a taxing authority actually
levying tax.

PURPOSE OF TAXATION
Revenue

purposes
Regulatory purposes
Compensatory purposes

PROCESS OF TAXATION
LEVY- determination
of certain amount
or of certain
percentage to be
imposed on
persons,
property, or acts.

COLLECTION- taking or
getting by proper
governmental
agencies if taxes
imposed

ASSESSMENT- computation
of the sum due, giving
of notice, making of the
demand.

CLASSIFICATION OF TAXES
1.As to subject matter or object:
a. Personal, poll, or capitation
b. Property
c. Excise
2. As to who bears the burden:
a. Direct
b. Indirect
3. As to determination of amount:
a. Specific
b. Ad Valorem

4. As to purpose:
a. General, Fiscal, or Revenue
b. Special or Regulatory
5. As to scope:
a. National
b. Municipal
6. As to graduation or rate:
a. Proportional
b. Progressive
c. Regressive

AGENCENCIES INVOLVED IN TAXATION

Bureau of
Bureau of
Bureau of
Bureau of
Insurance

Internal Revenue
Customs
Treasury
Local Government Finance
Commission

II. Government Expenditure

EXPENDITURE the act

of spending money.

5 Categories of
Government
1.) EconomicExpenditure:
Development

Expenditures
2.) Social Development
Expenditures
3.) National Defense
Expenditures
4.) General Public Services
Expenditure

ECONOMIC DEVELOPMENT EXPENDITURES

Include

expenditures on
agriculture and natural resources,
on transportation and
communications, on commerce and
industry and on other economic
development efforts.

SOCIAL DEVELOPMENT
EXPENDITURES
Consist

of government outlay on
education, on public health and
medicare, on labor and welfare
and others.

NATIONAL DEFENSE EXPENDITURE

can be subdivided into national

security expenditure and
expenditures for the maintenance
of peace and order.

GENERAL PUBLIC SERVICES EXPENDITURE

spending for the general

government, for legislative
services, for the administration of
justice and for pensions and
gratuitions.

DEBT
SERVICES

III. BUDGET SYSTEM

BUDGET OF THE GOVERNEMENT is
a summary or plan of the intended
revenues and expenditures of that
government.

FOUR BUDGET STEPS OR PROCESS

AGENCIES INVOLVED IN THE BUDGET SYSTEM

Development Budget Coordination

Committee
- Department of Budget and
Managemen
- Department of Finance
- National Economic and
Development Authority
- Bangko Sentral ng Pilipinas
- Office of the President of the
Philippines

IV. PUBLIC DEBT

PUBLIC DEBT: ACCDG. TO SOURCE

1.Internal

or Domestic
2.External or Foreign

PUBLIC BORROWING CATEGORIZED

AS:
1. Direct borrowings of both the
national and local governments
2. guaranteed and non-gauranteed
debt of government corporations
3. debt of monetary constitutions

PUBLIC DEBT: ACCDG. TO MATURITY

1.

2.

3.

Short-term debt payable

within one year.
Medium-term debt payable
after one year but not beyond
five years.
Long-term debt payable
beyond the period of five years.