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Government is not a company that has one absolute leader to whom most, if not all of the finances involved are ultimately his. Unlike this kind of corporation, government survives on tax payers’ money in this regard, public officials in government are accountable to the public and ought to make clear to them how much money government typically receives every year and how much they spend. Hence we explain in this article what Are the Four Areas of Public Finance? This whole aspect is Public Finance, where we look mainly at government financial activities from expenditure, revenue generation and deficits among others.
The phenomenon of public finance is divided into four parts namely Public Expenditure, Public Revenue, Public Debt and Financial Administration. All four are aimed at achieving one common goal, which is to figure out how government can, create, maintain or intervene in the existing economy.
While looking at these aspects it is also important to interrogate market changes implemented by governments and their effects, be they positive or negative. Let us take walk through the four avenues of Public finance in detail:
The 4 areas of public finance?
What are the 4 areas of public finance? Main four areas of Public Finance in the field of public finance include four areas: taxation, government expenditures, budget process and public debt.
1. Public Expenditure
Government departments are allocated budgets that they are supposed to use for the development of their bureaucracies. The function of the Public Expenditure arm is to study how this money is consumed in principle. Here is where problems arise from some expenditure systems by the respective government bodies. It is important to know these also are supposed to generate funds that will ultimately subsidize their budget allocation such that their expenditure is regulated accordingly.
Typical government expenditures range from, pensions, education, health care, security, and infrastructure. Because of the crooked nature of human beings, more attention is paid to public expenditure as compared to the other four parts of the phenomenon. Government authorities, the world over have been accused and arrested for embezzlement and criminal abuse of office among other crimes relating to the abuse of public funds. It is quite unfortunate these criminal activities by the people who have citizens’ trust given them for the job they are supposed to take up.
This takes us back in time where we look at how governments survived in the past with regard to public finance issues. While laissez-faire (an economic system where there is little to no intervention in private transactions) philosophies believed the ideal way of running an economy is giving people freedom, an alternative view by John Maynard Keynes came in the 20th century where he emphasized on the aspect of balance through the role played by public expenditure in determining levels of income and distribution in the economy.
2. Public Revenue
Public revenue refers to money earned by the government mainly through taxes and other revenue generating activities engaged in by the bureaucracies that follow them. What this basically implies is, Public Revenue is the lifeblood of the government’s financial streams. Reflecting on what I just typed there, I feel- without preempting the entire piece- Public Revenue and Public Expenditure could sure be the most critical of the 4 areas of Public Finance.
A few weeks ago, a friend of mine said to me, “The rate at which money comes in is way slower than the rate at which it escapes your pocket.” Such is true about everyone’s finances, government as an entity included. Hence the need for ways to increase revenue. One example out of a myriad of ways government can use to increase public revenue is through ‘seignorage,’ where governments opt to deflate their currency which in turn means surplus revenue.
Although it works if done properly, a seignorage is quite controversial as it is one of the means by which public funds are embezzled among all sorts of crooked activities as witnessed in the past since time immemorial. Government has various bodies responsible for the execution of typical activities and it is from within these bureaucracies, issues pop out.
3. Public Debt
The old saying goes, “We are because of others!” I guess this applies to governments too. Everyone gets to a point where they need to borrow and subsequently get into debt. Instead of public finance graduates going forth to advocate for thorough research on public debt and the implications, it has on the economy. This century needs those who can come up with solid plans of how these debts will not only be repaid but also implement systematic management of public debt.
4. Financial Administration
In Public Finance this comes as a whole department responsible for the drawing up methods of budget preparation at different levels and aggregating all public funds. This is where analyses of public revenue and public expenditure always hope for a surplus as opposed to a deficit.
The former refers to when public revenue is more than expenditure while the reverse is true for the latter. I am sure as you are reading this you are already having ideas of what needs to be done, which is simple in theory but not being practiced even by graduates in the field.
What a pity! Financial administrators are supposed to be proficient in raising public revenue and be able to, without abusing, allocate public funds and resources. Financial administration also involves the management of public assets making sure the government is well funded for important activities. These activities should certainly serve matters of public interest.
The importance of Public Finances an area of study has grown tremendously over the years with the public sector growing at an inexplicable rate. Today in some nations, the government employs more people than all industries combined. Financial obligations in the hands of the government are around national defense, administration of justice, and provision of those non-private goods and services.
To understand how public finance works, one has to interact with the aspect of taxation and how taxes end up in one big pocket together with other funds generated from activities by government bodies. This big pocket is what we call public revenue. Economic efficiency, distribution of income, and macroeconomic stabilization are among the goals of Public Finance as an arm of government.