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Public Finance

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 the society.

What is Public Finance


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

Scope of public
Finance

Four major divisions in the study


of public finance
1. Public Revenue, which 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 shifting of taxes, effects of taxation, etc.
2. Public Expenditure, which deals with the principles and problems
relating to the allocation of public spending. 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.

Four major divisions in the study


of public finance
3. Public Debt, which deals with the study of the
causes and methods of public loans as well as public
debt management.

4. Financial Administration, under this the


problem of how the financial machinery is
organized and administered is dealt with.

Finance, the scope of public finance embraces


the following three functions of the governments
budgetary policy confined to the fiscal
department:
1. The Allocation Branch- determine what adjustments in allocation
are needed, who shall bear the cost, what revenue and expenditure
policies to be formulated to fulfill the desired objectives.
2. The Distribution Branch- determine what steps are needed to
bring about the desired or equitable state of distribution in the economy.
3. The Stabilization Branch- confine itself to the decisions as to what
should be done to secure price stability and to maintain full employment
level.

Significance of public finance


Taxation

Subsidies and grants

Protection of Infant
Industries

Optimum utilization of
resources

Provision Public Good

Economic planning

Side Effects of a Market


Economy
Redistribution of Income
Equity

Providing employment
opportunities
Market Failures

Issues and
Problems

Issues and Problems


Obstacles to mobilization of domestic financial
resources

Issues and Problems


Regressive taxation

Issues and Problems


Inefficient tax administration-Inefficiency

Issues and Problems


Limited external sources of public financing

Issues and Problems


Tax incentives

Issues and Problems


Borrowing

Underspending on Social development

Philippines Policy
on Public Finance

Monetary Policy

measures or actions taken by the central bank


to influence the general price level and the level
of liquidity in the economy
aimed at influencing the timing, cost and
availability of money and credit, as well as other
financial factors, for the main objective of
stabilizing the price level

Expansionary Monetary Policy monetary


policy setting that intends to increase the level
of liquidity/money supply in the economy and
which could also result in a relatively higher
inflation path for the economy.

Contractionary Monetary Policy - monetary


policy setting that intends to decrease the level
of liquidity/money supply in the economy and
which could also result in a relatively lower
inflation path for the economy.

In the Philippines, monetary policy


instruments are classified into:
Open Market Operations (OMO)
Rediscounting
Reserve Requirement
Direct Controls
Moral Suasion

Fiscal policy of the


Philippines
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 policy of the


Philippines
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.

Tools of Fiscal Policy


Taxation
Spending

The Four Major Functions of


Fiscal Policy
Allocation
Distribution
Stabilization
Development

EXPANSIONARY FISCAL POLICY


A form of fiscal policy in which an increase in
government purchases, a decrease in taxes, and/or an
increase in transfer payments are used to correct the
problems of a business-cycle contraction. The goal of
expansionary fiscal policy is to close a recessionary
gap, stimulate the economy, and decrease the
unemployment rate. Expansionary fiscal policy is often
supported by expansionary monetary policy. An
alternative is contractionary fiscal policy.

CONTRACTIONARY FISCAL
POLICY:
A form of fiscal policy in which a decrease in
government purchases, an increase in taxes, and/or a
decrease in transfer payments are used to correct the
inflationary problems of a business-cycle expansion.
The goal of contractionary fiscal policy is to close an
inflationary gap, restrain the economy, and decrease
the inflation rate. Contractionary fiscal policy is often
supported by contractionary monetary policy. An
alternative is expansionary fiscal policy.

END