Public finance is concerned with how governments raise money, how that money is spent, and the effects of these activities on the economy and on society. Public finance studies how governments at all levels – national, state, and local – provide the public with desired services and how they secure the financial resources to pay for these services .
In many industrialized countries, spending and taxation by the government form a large portion of the nation’s total economic activity. For example, total government spending in the United States equals about 40 percent of the nation’s gross domestic product – that is, the value of all the goods and services produced within the United Sates in one year.
Why public finance is needed
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.
Public finance also enables governments to correct or offset undesirable side effects of a market economy. These side effects are called spillovers or externalities. For example, households and industries may generate pollution and release it cots les to produce than not to, people and businesses have a financial incentive to continue polluting. Polluting is a spillover because it affects people who are not responsible for it. To correct a spillover, governments can encourage or restrict certain activities. For example, governments can sponsor recycling programs to encourage less pollution, pass laws that restrict pollution, or impose charges or taxes on activities that cause pollution.
Public finance provides government programs that moderate that income of the wealthy and the poor. These programs include social security, welfare, and other social programs. For example, some elderly people or people with disabilities require financial assistance because they can not work. Governments redistribute income by collecting taxes from their wealthier citizens to provide resources for their needy ones. The taxes fund programs that help support people with low incomes.
Each year national, state, and local governments create a budget to determine how much money they will spend during the upcoming year. The budget determines which public goods to produce, which spillovers to correct, and how much assistance to provide to financially disadvantaged people. The chief administrator of the government – such as the president, prime minister, governor, parliament, state legislature, or city council – ultimately must pass the budget. The legislature often changes the size and composition of the budget, but it must not make changes that the chief administrator will reject and veto.
Government spending takes two forms: exhaustive spending and transfer spending. Exhaustive spending refers to purchases made by a government for the production of public goods. For example, to construct a new harbour the government buys and uses resources from the economy, such as labour the raw materials. In transfer spending the government transfers income to people to help them support themselves. Transfer can be one of to kinds: cash or in – kind. Cash transfers are cash payments, such as social security checks and welfare payments. In - kind transfers involve no cash payment but instead transfer goods or services to recipients. Examples of in – kind transfers include food stamp coupons and Medicare. Recipients of food stamp coupons exchange the coupons for groceries.
Governments must have funds, or revenue, to pay for their activities. Governments generate some revenue by charging fees for the services they provide, such as entrance fees at national parks or tolls for using a highway. However, most government revenue comes form taxes, such as income taxes, capital taxes, and sales and excise taxes.
An important source of tax revenue in most industrialized countries is the income or payroll tax, also known as the personal income tax. Income taxes are imposed on labor or activities that generate income, such as wages or salaries.
Another important source of government revenue is the capital tax. Capital includes items or facilities that generate profits, such as factories, business machinery, and real estate. Some types of capital taxes are known as “profits” in the corporate income tax. A property tax is a capital tax used by state and local governments. Property taxes are levied on items such as houses and boats.
Sales and excise taxes are also a major source of government tax revenue. Many state and local governments levy a sales tax on the purchase of certain items. Consumers usually pay a percentage of the sales price as the tax. Excise taxes are used all levels of government. An excise tax is levied on a specific product, such as alcohol, cigarettes, and gasoline. The tax is usually included in the purchase price.
In Canada and many European, South American, Asian countries, a value – added tax (VAT) provides significant revenue. The VAT is levied on the value added to a product during production as its components are assembled into final goods. For example, a clothing manufacturer might spend $ 500 on fabric, thread, zippers, and other goods required to make dresses. The manufacturer then adds $ 1,000 to cover the cost of labor and the use of machines and equipment and sells the dresses for a total of $1,500. The value – added tax is paid on this $ 1,000.
1. What are public goods?
2. Why do governments have to provide them?
3. What is a spillover?
4. In what way does a government correct a spillover?
5. What is the other function of public finance the provision oh public goods and correction of spillovers?
6. How important is the creation of a budget? Why?
7. Which spending is more important, exhaustive or transfer? Why?
8. Where does public revenue come from?
9. What is the difference between income tax and profit tax, sales tax and excise tax?
10. Who pay the excise tax and VAT? How are these taxes collected?
Read the text below and find the right word from the box to fill each of the gaps.
economic levels stability revenue public
business functions responsibilities activity well-being
The functions of government. Government is the biggest (1)……….. in the nation. At all (2)……….-federal, state, and local- it employs more workers than any other business. Government collects more (3)……… and spends more. It also owes more. Government in the United State secures four important economic (4)………:1. providing (5)………..goods, 2. providing for the public (6)……….,3. regulating economic (7)…….., and 4. ensuring economic (8)………. Federal, state, and local governments share (9)………….for the three functions. The fourth responsibility, ensuring (10)………….stability, is handled almost entirely by the federal government.
Translate the following text into English paying special attention to standard use of terms and clarify of expression.
Tài chính công
TCC là công tác quản lí nguồn lực tài chính để dùng vào các hoạt động kinh tế.Có 4 hệ thống tài chình trong một nước: TC Nhà nước (Ngân sách và tín dụng Nhà nước), TC doanh nghiệp (cả DN trong và ngoài nước), TC hộ gia đình (ngân sách gia đình) và TC của các tổ chức tài chính (TC ngân hàng, TC bảo hiểm….)
Nói đến TCC là nói đến chính sách tiền tệ thuộc trách nhiệm của NHTW và chính sách tài chính do Kho bạc hay bộ TC điều hành mà mục tiêu là tạo nguồn cho Ngân sách.TCC đòi hỏi các khoản công chi lớn để xây dựng cấu trúc hạ tầng (đường xá, bệnh viện…..), bảo đảm các hoạt động quốc gia và cứu tế xã hội, trợ vốn để bảo hộ và định hướng hoạt động sản xuất…
Nguồn của chi tiêu công là: thuế thu theo kế hoạch tài chính, tiền pháp định do NHTW phát hành thêm, công trái do Chính phủ bán ra, viện trợ nước ngoài… Trong các nguồn tài trợ đó, thuế khóa đóng vai trò quan trọng hơn cả vì với nguồn thuế, Nhà nước có thể cùng một lúc vừa tránh được lạm phát, vừa bảo tồn tính độc lập quốc gia, lại có thể điều chỉnh nhanh chóng hướng sản xuất trong nền kinh tế quốc dân.Vì vậy, thuế khóa đã được chế định thành luật và mọi công dân có năng lực đều phải đóng góp vào Ngân sách vì mục đích chung
Cùng với chính sách tiền tệ, chính sách tài chính tham gia vào công tác quản lý kinh tế vĩ mô: đảm bảo tăng trưởng kinh tế, phân bố tài nguyên cho công dân, tạo việc làm và giới hạn lạm phát.