Public Finance

The Study of Public Finance

The study of government finances is referred to as public finance. As a result, it addresses problems of how governments raise resources to meet rising spending. According to Pigou (2013), “public finance deals with income and expenditure for public authorities, as well as their adjustment to one another.” Public finance also includes government spending, public borrowing, and deficit financing. This means that public finance is concerned with economic objects such as infrastructural growth, economic and price stability, equal distribution, and efficiency.

Debt: Internal and External

Debt is simply the amount of money owed by one party to another.

According to Anderson (2012), Debt can either be internal or external. Internal debt is the money borrowed by the government within the country from individuals, financial institutions, central banks and commercial banks. External debt is the money borrowed by the government from the rest of the world such as international institutions, for instance IMF. It is the role of government to deal with public debt.

Importance of Debt in Public Finances

Why is Debt so Important to our Discussion on Public Finances?

In order to increase the government finance as observed by Gadenne (2017), the government relies on borrowing. With public borrowing, the government seeks to finance economic development, to meet and bridge contingencies, carry out welfare programs, to create infrastructure. Debt can be classified into various categories: voluntary and compulsory debt, productive and unproductive (purpose of loans), internal and external debt, short/medium/long term loans with time duration of payments. It is therefore evident that debt is a topic of interest in the discussion of public finances since it serves as bridge between what the government has and what the government requires to meet its economic obligations.

References

Pigou, A. C. (2013). A study in public finance. Read Books Ltd.

Anderson, J. E. (2012). Public finance. Cengage Learning.

Gadenne, L. (2017). Tax me, but spend wisely? Sources of public finance and government accountability. American Economic Journal: Applied Economics, 9(1).