Group 7:

Ambata, Queenie
Belmonte, Jillian
Dorgu, Rebecca
Lariosa, Jessa
MLS 2-G

What is Public Finance?

Public Finance, field of

economics concerned with how
governments raise money, how
that money is spent, and the
effects of these activities on the
economy and on society.

What is Public Finance?

Public finance studies how
governments at all levelsnational,
state, and localprovide the public
with desired services and how they
secure the financial resources to
pay for these services.

Three folds of Public Finance

EFFICIENT
EFFICIENT
ALLOCATION OF
ALLOCATION
OF
RESOURCES
RESOURCES

PUBLIC
PUBLIC
FINANC
FINANC
E
E
MACROECONOMIC
MACROECONOMIC
STABILIZATION
STABILIZATION

DISTRIBUTION
DISTRIBUTION OF
OF
INCOME
INCOME

The importance of Public Finance

Governments provide public goods
government-financed items and services
such as roads, military forces, lighthouses,
and street lights.
Private citizens would not voluntarily pay
for these services, and therefore businesses
have no incentive to produce them.

The importance of Public Finance

Public finance also enables
governments to correct or offset
undesirable side effects of a market
economy.
Public finance provides government
programs that moderate the
incomes of the wealthy and the
poor.

The importance of Public Finance

These programs include social security,
welfare, and other social programs.
For example, some elderly people or
people with disabilities require financial
assistance because they cannot work.

Significance of Public Finance

Every body realizes necessity of money. The importance of money is too much
not only for individual but for the state also. The state has to perform number of
functions for which money (funds) is required. For beginning of any function
funds (finance) is must and in view of this the public finance nowadays has vital
importance. Its importance can be easily understood from the functions of public
finance. They are:

Allocative Function
Distributive Function
Stabilization Function

Functions Of Public Finance

Allocative Function

It refers to the process by which total resource use is divided

between private and social goods by which the mix of social goods is
chosen, this is done by the budgetary policy.
Distributive Function

The budgetary policy also affects the distribution of income in the

community. The tax and expenditure measures are adopted to modify
the existing distribution with a view to reducing economic inequalities.
Stabilization function

The budgetary policy can also be used to maintain a high level

employments reasonable degree of price level stability, an appropriate
rate of economic growth and stability in the balance of payment.

TOP 10 COUNTRIES IN THE

WORLD WITH LOWEST
EXPENDITURE(% GDP 2013)
(source: http://data.worldbank.org/indicator)

1. BANGLADESH 5.1

2. CAMBODIA 5.2

3. NICARAGUA 5.7

4. VIETNAM 6.2

5. ROMANIA 6.2

6. MACAO SAR, CHINA 6.5

7. EQUATORIAL GUINEA 6.7

8. UNITED ARAB EMIRATES 6.8

9. GAMBIA, THE 7.5

10. SUDAN 7.5

TOP 10 COUNTRIES IN THE WORLD WITH HIGHEST

REVENUE EXCLUDING GRANTS (% GDP 2012)

(source: http://data.worldbank.org/indicator)

1. KIRIBATI 66.5

2. KUWAIT 61.7

3. NORWAY 49.1

4. OMAN 44.7

5. GREECE 42.7

6. FRANCE 42.4

7. AZERBAIJAN 41.8

8. BELGIUM 41.4

9. BOSNIA AND HERZEGOVINA 40.2

10. ANGOLA 40.2

TOP 10 COUNTRIES IN THE WORLD WITH LOWEST

REVENUE EXCLUDING GRANTS (% GDP 2012)

(source: http://data.worldbank.org/indicator)

1. SAMOA 0.0

2. UNITED ARAB EMIRATES 3.2

3. NIGERIA 5.0

4. AFGHANISTAN 9.9

5. CENTRAL AFRICAN REPUBLIC 11.1

6. JAPAN 11.2

7. GUATEMALA 11.5

8. SIERRA LEONE 12.2

9. INDIA 12.4

10. PAKISTAN 12.7

Budget by Department and Special

Purpose Fund TOP 10 DEPARTMENTS

1. DepEd 292.7 B

2. DPWH 152.9 B

3. DND 121.6 B

4. DILG 121.1 B

5. DA 74.1 B

6. DOH 56.8 B

7. DSWD 56.2 B

8. DOTC 37.1 B

9. DOF 33.2 B

10. DENR 23.7 B

Issues and Problems

TAXATION
GOVERNMENT EXPENDITURES
BUDGET PROCESS
PUBLIC DEPT

Issues and Problems

Taxation
These issues cover the following
topics:
(1) tax performance
(2) tax incidence

Tax Performance
Tax performance is by far the most widely researched topic
in the area of taxation. Tax performance refers to the
degree at which a countrys tax base or taxable capacity
has been exploited in its effort to mobilize government
resources.

Tax Incidence
Tax incidence studies attempt to answer the question:
who bears the tax burden in the economy?
Taxation, in general, reduces the personal income,
transfers in the form of gifts or inheritance and land
rentals of some people and increases the prices of
goods and services consumed by others. These losses
and price increases consist the tax burden to these
people.

Government Expenditures
Time lags a delay between an economic action
and a consequence. There may be a
considerable time-lag between spending and
the benefits that arise.
Crowding Out Crowding out can be defined at
the process of squeezing out the privately
owned manufacturing sector by the expansion
of the public sector.

 Higher taxes in the future The

government will need to reduce
borrowing as a % of GDP. It means
future budgets will need to increase
taxes or limit spending.
Distribution of Income The unequal
distribution of household or
individual income across the various
participants in an economy. It is
often associated with the idea of
income.

Budget Process
Issues related to the budget system
may be divided into: (1) the budget
and economic development and (2)
administrative issues.

The Budget and Economic Development

Fernandez work (1973) is by far the most comprehensive attempt

to describe and evaluate the countrys economic development
efforts through the national budget. Based on Lampmans (1967)
estimates of the sources of growth in the Philippines, she
concludes that the governments contribution to average GNP
growth for the period 1955-1965 is 0.35 of one per cent.

Riha (1975) on the other hand, estimated the effect of budget

changes in GNP using the demand type model used by Hansen
(1969). He found out that year to year changes in the budget
exerted an upward push on GNP of 0.63 per cent on the average
for 1947-1973

Administrative Issues
Fernandez (1975) pointed out that the delineation of budget expenditures
into current operating and capital outlays tends to be misleading in as
much as current expenditures may contain a developmental element.
She also noted that fiscal planning should imply planning the budget over
the medium term rather than planning it annually. This is especially
critical when one considers the capital formation process which usually
involves time lags.
Claudio (1978) likewise stressed the need for long-term budgeting. She
outlined the factors that must be taken into consideration in the
preparation of a long-term budget. She also discussed the relationship of
long-term budgeting to other budgeting approaches like zero-base
budgeting, key budgetary inclusion technique and regional budgeting.

Public Debt
Existing literature on public debt in
the Philippines have concentrated
on two issues: (1) the level of debt
and (2) debt and inflation.

The level of debt

Sioson (1975) noted that compared to that of the US
and those of other Asian countries (Ceylon, Malaysia),
the Philippine ratio of public debt to GNP is low. She
also showed that interest payments and debt service
(interest plus repayments) had remained low relative
to total government expenditure.

Debt and Inflation

One of the causes often cited for inflation is public debt via
its effect on the money supply level. Sioson (1975)
concludes that since money supply expansion is not a
principal factor in Philippine inflation, public borrowings
which contribute to increases in money supply not have a
significant bearing in Philippine inflation. She based this
statement on the works of Ross (1966) and Bautista (1975)
which related the price level and changes in the price level
to the money supply and found no significant relationship.
Of course, this is not exactly the best way to test the
hypothesized relationship between public debt and inflation.

Philippine Policy on Public Finance

Monetary
Commercial
Fiscal

Fiscal Policy
Fiscal policy refers to the measures employed by
governments to stabilize the economy, specifically by
manipulating the levels and allocations of taxes and
government expenditures.
Fiscal measures are frequently used in tandem with
monetary policy to achieve certain goals. In the
Philippines, this is characterized by continuous and
increasing levels of debt and budget deficits, though
there have been improvements in the last few years.

Importance of Fiscal
Government activities are enlarged
Tax-revenue and expenditure accounts
for large proportion of GNP
It indicates the level of overall
borrowings by the government.
It is the indicator of fiscal health of the
economy.

Commercial policy

Its is known as the

export import policy of
a country

Importance of Commercial Policy

Economic development
Earning foreign exchange and
developing industries
Regulate and promote foreign trade
Balance trade
Increase export and reduce imports

Monetary Policy

The process by which the

monetary authority of a
country controls the supply
of money.

Goals of Monetary Policy

Higher economic growth

Higher rate of employment
Price Stability
Neutrality of money
Stability
Instruments of monetary policy

Philippine Policy on Public

Finance

The Public Financial Management (PFM)

Reform Program aims to improve
efficiency, accountability and
transparency in public fund use in order
to ensure the direct, immediate,
substantial and economical delivery of
public services especially to the poor.
The Program implements the key
strategies of the Philippine PFM Reform
Roadmap: Towards Improved
Accountability and Transparency (20112016), a comprehensive reform agenda
that seeks to clarify, simplify,
improve and harmonize the
governments financial management
processes and information systems.
The integrated systems will cover all
transactions of government and apply
uniformly to all government agencies.