Public finance means the finances of the government. Public finance studies the way the government manages its income, expenditure and debts. Public finance gives a complete picture of the government’s income, expenditure and debt management. In public finance, the government calculates its expenditure first and then adjusts its income accordingly.
A government, with an intention to establish economic progress and financial stability, announces the fiscal policy related to its income, expenditure and debt. The government manages public finance according to fiscal policy. Public finance is managed keeping in mind the progress of the nation.
The government, through its fiscal policies, formulates methods to equitably distribute the country’s natural wealth, labour and capital investment, and tries to maximize the production. In the same manner, the government tries to ensure the equitable distribution of the income generated amids all sections of the people, and tries to see that all people live comfortably.
The government, through its fiscal policies, enhances the public expenditure in priority areas like agriculture, small scale industries and basic infrastructure. By these means, the government takes steps to ensure a balanced growth in all spheres of the economy. Developing countries like India utilize public finance in order to eradicate poverty and unemployment, regulate financial upheavals and commodity prices, and thereby establish financial stability. The purview of public finance is considered to be threefold: governmental effects on
(1) efficient allocation of resources,
(2) distribution of income, and
(3) macroeconomic stabilization.