 The solemn and constitutional duty of a government

is to;
 Safeguard and protect the life and liberty of its
citizens
 Governments are also responsible for providing
roads, ports, airports, health services etc.
• The Governments need to incur expenditure for
providing these and other goods/services to its
citizens.
• Governments meet this expenditure partly by
levying taxes on its citizens and partly by
raising loans.
• The financial operations of the
governments with regard to raising and
disbursement of finances are called Public
Finance.

4
• 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
 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.
 This deals with the study of the causes and methods of
public loans as well as public debt management.
 Under this, the problem of how the financial machinery
is organised and administered is dealt with.
 It covers a full discussion of the influence of
government fiscal operations on the level of overall
activity, employment, prices and growth process of the
economic system as a whole.
 According to Musgrave, the scope of public finance
embraces the following three functions of the
government’s budgetary policy confined to the fiscal
department:
 The Allocation Branch,
 The Distribution Branch, and
 The Stabilisation Branch
 These refer to three objectives of budget policy, i. e.,
the use of fiscal instruments:
 To secure adjustments in the allocation of resources,
 To secure adjustments in the distribution of income and
wealth, and
 To secure economic stabilization.
 Thus, the function of the allocation branch of the fiscal
department is to 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.
 The function of the distribution branch is to determine
what steps are needed to bring about the desired or
equitable state of distribution in the economy and the
stabilisation branch shall confine itself to the decisions
as to what should be done to secure price stability and
to maintain full employment level.
1) Increase in the Activities of government - Govt. responsibility
today is not merely to maintain Peace and order rather the
modern welfare Govt also work for the economic development,
full employment , price stability ,eradication of poverty, etc. So
owing to an increase in economic development and social
welfare activities , there has also been an increase in the
importance of public finance.

2) Effect on Economic life – The activities of public finance like

public expenditure , taxation system , etc have a great effect
on economic life . As a result of the govt. policy regarding
taxation or expenditure , production can be increase, saving can
be increased.
Thank you