The government operates at three levels, i.e., national, provincial and Local. The subject of public finance looks into financial problems and policies of government at these three levels and studies inter-governmental financial relation. The area of public finance also sees that how the 3 government raise and share resources.
Public revenue: sources of government income are:
a. Taxation and its effect on economy– The governments of today have many sources of income but taxes remain an important source of income. Today government’s expenditures have also increased manifold. The main expenditure purpose is: Redistribution of income (from rich to poor) or help finance welfare activities and to achieve economic objectives such as control of inflation, economic growth, employment and Reduction of balance of payment deficit.
b. Non-tax revenues such as fee, fines, grants, interest receipt etc. Various services provided by the government – police and defence, social and community services such as medical services, and economic services such as power and railways – also yield revenue for the government. Though the Railways are a separate department, all their receipts and expenditure are routed through the Consolidated Fun
c. Public debt problems: public debt is a source of income. The money and interest/debt that the government has to pay back to the public when it borrowed from it (refer to public borrowing) is known as public debt.it has been on a constant rise in developing countries since a long time due to haphazard budgets and unforeseen circumstances that lead to a not so proper implementation of even a proper budget. Public debt can be both internal and external. Internal has been discussed above. External debt is when the government of a country borrows from global institutions like the World Bank and international monetary fund, etc.
Public Expenditure: through public expenditure government participates and contributes to the financial flows of the economy. It is also a tool for implementing welfare and other Policies. The expenditure that government makes affects the economics because government Expenditure is inflow to the economy. Provision of public and utility services – provision of basic public goods given by government (their maintenance and installation) such as transportation. Accelerating economic growth – in order to raise the standard of living of the people. Price rise – higher price level compels government to spend increased amount on purchase of goods and services. Increase in public revenue – with rise in public revenue government is bound to increase the public expenditure. International obligation – maintenance of socio economic obligation, cultural exchange etc.
Financial Administration: It involves issues of financial administration including public budget, its approval, financial implementation, control systems and audit. Without the study of financial administration the subject of public finance remains incomplete. Once requisite data is collected from all ministries and department and scrutinized in tandem by the controlling officers and the accountant general and the administrative departments, it is then reviewed by the finance ministry and again the same process is followed by the union cabinet. That is why there is collective responsibility of the cabinet for the budget in parliament. The budget is the framed by the finance ministry in the proper format after consulting the planning commission for concluding the plan priorities and the help of CAG is also taken for getting previous years data of accounts. All this work begins in September of the current year for preparation of budget for the next financial year beginning on April 1st .the state have their own budget and the same procedure is followed but done by the state finance department following the same procedure as in the centre and has to be approved by the respective state legislature.
National finance: It studies the multilayer (the 3 levels of government) system of government which necessitates a division of function and resources between the layers of government and inter-governmental relations. We will deal with each of these areas separately.