Public finance is broadly divided into four branches. These are Public Expenditure, Public Revenue, Public Debt and Financial Administration.
Under Public Expenditure, we study the various principles, effects and problems of expenditure made by the public authorities.
Under the branch of Public Revenue, we study the various ways of raising revenues by the public bodies. We also study the principles and effects of taxation and how the burden of taxation is distributed among the various classes in the society.
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Public Debt is the study of the various principles and methods of raising debts and their economic effects. It also deals with the methods of repayment and management of public debt.
The branch of Financial Administration deals with the methods of budget preparation, various types of budgets, war finance, development finance, etc.
Need for the Public Finance
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We all know that the existence of a large and growing public sector is a reason enough to study public finance. Adam Smith in his monumental work. The Wealth of Nations laid out the basic jobs of the government. The government is to play an important role in providing for the defence of the nation, the administration of justice, and in the provision of those goods and services not wholly to be the result of ordinary private activity.
Adam Smith also had an acute awareness of the problems that would be associated with raising the funds needed to finance these obligations. His four maxims of taxation remain today a guide in designing a nation’s revenue structure. The four maxims focus attention on matters of economic efficiency as well as equity.
