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What is Public Finance?

By Michi Beck
Updated May 17, 2024
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Public finance is part of the field of economics, and primarily concerned with activities that involve the government and how it allocates resources and spends money. A narrower term for this type of financial study would be government finance, with the broader term being public economics. How resources are acquired and used, and how stable the economy is on a macroeconomic level are all important to people who study public finance. This branch of economics focuses more on the proper role of a government in society. The theory is that government would not be needed if private enterprise allocated everything to everyone fairly.

That does not happen, so government is needed to ensure that people who have no money are able to get basic services such as food and medical care. This is done by taxing everyone so the money collected can be distributed through government programs for needy people. People who have very little end up paying very little tax, and people who have more pay more. Another way the government handles public finance is through borrowing money, thus providing more money for it to spend. Government bonds are one of the ways the ruling body creates something of value to borrow against.

When people focus on their personal finance goals by buying government bonds, the money they pay to acquire them is, in essence, a loan to the government. The government then uses that money, along with tax collections and other revenue streams, to finance specific projects and operate programs designed to help people and businesses that are struggling. Public finance also seeks to hold the government accountable for the way it collects money and how it chooses to spend it once it is collected. The way a governmental entity handles its money is generally very complicated, and it often results in some sectors of the public being upset about practices that appear to be highly inefficient.

Unlike corporate finance, which is relatively cut-and-dried in the way money is handled, public finance involves a redistribution of income that is dealt with far differently in some countries than it is in others. The United States, for example, does not have in place some of the larger social programs, such as public health care, that many European nations do. This prompts both positive and negative reactions from the general public and can lead some people to feel insecure and question how their tax dollars are actually being spent.

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Discussion Comments
By anon967522 — On Aug 28, 2014

For a country like Ghana, I wonder what they use public finance for because obviously, we don't see any changes. There is no medical or educational help. It's awful.

By ddljohn — On Jul 01, 2011

Public finance is actually a very serious profession in the United States. Many people who work in this field do because they want to serve the public and what better way to do it than to provide them with the services and goods they need through financing.

I used to think that people who worked in public finances were a sort of accounting personnel that dealt with numbers all day. The only difference was that they were dealing with public money instead of an individual's or a corporation's. But I read an article which made me realize that this is not true.

People in the field are actually working to find better financial policies for government agencies so that the people can benefit more from it. And the government is very particular about selecting employees that are honest and can be trusted in their work. They also have to be very competent in their field and are expected to keep developing themselves, their knowledge and skills.

So public finance workers are really public workers. Social work, public finance and public policy work are not too different. The interests of all three lie in serving the public. I'm really glad that I ran into this article, it shed some new light on public finance for sure.

By burcidi — On Jun 30, 2011

We learned in class that the way public finance works depends on whether the government is organic or individualistic. Organic means that the government of a nation and everyone in that nation is the same, they make up the same entity. Individualistic means that the government and the people are separate, not together and everyone cares about their individual needs and interests.

I would like to ask, which form of government does the U.S. have and what does this mean for public finance?

Does public finance only happen in an organic government because the money which comes to the government belongs to all the people, so it is the finances of the public?

By ysmina — On Jun 29, 2011

I think the most interesting aspect of public finance is the presence of corruption and how that affects the government finances that are allocated for public services.

This is an important issue for developing countries because in some nations, there is so much corruption among government agencies and employees that the government is unable to do its job. The money which is meant to be distributed to the poor in the form of food or medical care can literally disappear.

This undermines the leaders who run that government and weakens people's belief in that system. It also slows down development because businesses and international companies are unwilling to invest in a country where corruption is rampant.

If I could study public finance, I would have loved to concentrate on public finance and corruption.

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