8PUBLIC FINANCE

Question 1

Defn of public finance

Answer 1

Public finance is the study of principles underlying the spending and raising of funds by public authorities
~Prof. Findlay Shirras

Question 2

Functions of govt

Answer 2

Obligatory
Optional

Question 3

Obligatory function

Answer 3

Protection from external attacks, maintaining internal law and order etc. are obligatory functions of the government.

Question 4

Optional function

Answer 4

Provision of education and health services, provision of social security like pensions and other welfare measures etc. are optional functions of the government.

Question 5

Classification of public expenditure

Answer 5

Developmental expenditure
Non developmental expenditure
Revenue expenditure
Capital expenditure

Question 6

Revenue expenditure

Answer 6

○ is incurred for carrying out day to day functions
○is repetitive in nature
○neither creates asset nor reduces liability
○eg administration costs of govt Salaries and pensions of govt employees

Question 7

Capital expenditure

Answer 7

○non recurring in nature
○creates an asset or reduces liability
○expenditure for progress and development of the country
Eg, construction of imp flyover,
Granting of loans to state government,repayment of loans

Question 8

Developmental expenditure

Answer 8

○productive in nature
○the expenditure which leads to increase in employment,increase in production, price stability
○For example, expenditure on health, education, industrial development, social welfare, Research and Development (R & D) etc.

Question 9

Non Developmental expenditure

Answer 9

○unproductive in nature
○does not yield any productive impact on the country
○administration costs, war expenditure

Question 10

Reasons for increase in public expenditure

Answer 10

Rapid increase in population
Growing urbanization
Inflation
Industrial development
Increase in government activities
Increase in defense expenditure
Disaster management
Spread of democracy

Question 11

Sources of public revenue

Answer 11

TAX
NON-TAX

Question 12

Define tax

Answer 12

According to Prof. SELIGMAN
Tax is a COMPULSORY contribution from the person to the government without reference to special benefits conferred

Question 13

Features Of tax

Answer 13

1.compulsory to pay.major source of revenue to the govt. If not paid person can be punished SINCE IT AS MAJOR SOURCE OF REVENUE
2.to enable government to incure expenses in the common interest of the society
3.does not entitled him to recieve proportionate services
4.imposed on income, property,commodities and services

Question 14

Canon of Taxation ( name the points and what does it mean)

Answer 14

1.Canon Of equity(progressive tax system)(SMITH)
2. Canon of certainty(how much tax he has to pay, at what time he has to pay the tax and in what form the tax is to be paid to the government.)
3.Canon of convenience (in a convenient manner AND convenient time)
4. Canon of economy(cost of tax collection should be minimum)

Question 15

Types of public debt

Answer 15

1.Internal debt
2. External debt

Question 16

Internal debt

Answer 16

When a government borrows from its citizens, banks, central bank, financial institutions, business houses etc. within the country , it is known as internal debt. The govt borrows it by issuing govt bonds and treasury bills

Question 17

External debt

Answer 17

When a government borrows from foreign governments, foreign banks or institutions , international organizations like International Monetary Fund, World Bank etc., it is known as external debt.