Public finance - Citizendia

Public finance is a field of economics concerned with paying for collective or governmental activities, and with the administration and design of those activities. The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated Payroll tax generally refers to two kinds of taxes: Taxes which Employers are required to withhold from Employees Pay, also known as Withholding A capital gains tax (abbreviated CGT) is a Tax charged on Capital gains the profit realized on the sale of a non-inventory Asset that was purchased Stamp duty is a form of Tax that is levied on documents Historically a physical stamp (a Tax stamp) had to be attached to or impressed upon the document to denote Land value taxation (LVT (or site value taxation) is an Ad valorem tax where only the value of land itself is taxed A sales tax is a Consumption tax charged at the Point of purchase for certain goods and services Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. A flat tax (short for flat rate tax is a Tax system with a constant tax rate The tax tariff and trade laws of a political region State or Trade bloc determine which forms of consumption and production tend to be encouraged A tax haven is a place where certain Taxes are levied at a low rate or not at all In Economics, tax incidence is the analysis of the effect of a particular Tax on the distribution of economic welfare. In a Tax system and in Economics, the tax rate describes the burden Ratio (usually expressed as a Percentage) at which a business or person is A proportional tax is a Tax imposed so that the Tax rate is fixed as the amount subject to taxation increases A progressive tax is a Tax imposed so that the Tax rate increases as the amount subject to taxation increases A regressive tax is a Tax imposed in such a manner that the Tax rate decreases as the amount subject to taxation increases Tax advantage refers to the economic bonus which applies to certain accounts or Investments that are by Statute, tax-reduced tax-deferred or tax-free Personal income taxes See also Income tax in Australia Only the federal government imposes income taxes on individuals and this is the most significant source of Taxation in the British Virgin Islands is relatively simple by comparative standards photocopies of all of the tax laws of the British Virgin Islands would together amount to about 200 The level of Taxation in Canada is average among Organisation for Economic Co-operation and Development (OECD countries Taxes provide the most important revenue source for the Government of the People's Republic of China. See Government of Colombia for a wider perspective of Colombian government See Government of France for a wider perspective of French government Taxes in Germany —being a Federal Republic —are levied by the federation ( Bund) the States ( Länder) as well as the HK Inland Revenue Ordinance Cap112 is one of Hong Kong's Ordinances Taxes in India are levied by the Central Government and the State Governments This article ls with Taxation in Indonesia or pajak. Definitions "Pajak" in Indonesian for Tax and taxes whereas " Perpajakan The system of Taxation in Ireland is broadly similar to the system of Taxation in the United Kingdom. The Netherlands has a rich history dealing with taxation predating the Romanic period. Taxation in New Zealand is collected at a national level by the Inland Revenue Department (IRD on behalf of the Government of New Zealand. The Income tax in Peru is collected by the Superintendencia Nacional de Administración Tributaria, best known as SUNAT. The Russian Tax Code is the primary tax law for the Russian Federation. Individual income tax in Singapore forms part of two main sources of Income tax, the other being Corporate taxes on companies In Tanzania the Income Tax Act 2004 came into effect in July 2004 Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs) Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. Comparison of Tax Rates around the world is a difficult and somewhat subjective enterprise This table lists countries by total 2005 Tax revenues (federal state and local as a percentage of GDP (Gross Domestic Product Economic policy refers to the actions that Governments take in the economic field. Monetary policy is the process by which the Government, Central bank, or monetary authority of a country controls (i the Supply of Money, A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states In Economics, money supply, or money stock, is the total amount of money available in an Economy at a particular point in time The gold standard is a monetary system in which a region's common media of exchange are paper notes that are normally freely convertible into pre-set fixed quantities of Gold Fiscal policy, taking the scope of Budgetary policy, refers to government policy that attempts to influence the direction of the economy through changes in government taxes Government spending or government expenditure is classified by economists into three main types A budget deficit occurs when an Entity (often a Government) spends more Money than it takes in Government debt (also known as public debt or national debt) is Money (or credit) owed by any level of government either Central government Trade is the willing exchange of goods, services, or both Trade is also called Commerce. For other uses of this word see Tariff (disambiguation. A tariff is a tax imposed on goods when they are moved across a political boundary A trade pact is a wide ranging Tax tariff and trade pact that often includes Investment guarantees The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds There are two basic financial market participant categories Investor vs Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit Financial regulations are a form of Regulation or supervision which subjects Financial institutions to certain requirements restrictions and guidelines aiming to A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Fractional-reserve banking is the banking practice in which Banks keep only a fraction of the value of their Bank notes and demand deposits in reserve Full-reserve banking is the Banking practice in which the full amount of each depositor's funds are available in reserve at the bank when each depositor Free banking is a theory of Banking in which commercial banks and market forces control the provision of banking services Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law ( Sharia) principles and guided by Islamic economics The field is often divided into questions of what the government or collective organizations should do or are doing, and questions of how to pay for those activities. The broader term (public economics) and the narrower term (government finance) are also often used.

1 Overview
2 Government expenditures
- 2.1 Government operations
- 2.2 Income distribution
3 Financing government expenditures
4 The role of public spending and taxes
5 See also
6 Notes
7 References
8 External links

Overview

The proper role of government provides a starting point for the analysis of public finance. Private markets, if certain conditions are met, will allocate goods and services among individuals efficiently (in the sense that no waste occurs and that individual tastes are matching with the economy's productive abilities). If private markets were able to provide efficient outcomes and if the distribution of income was socially acceptable, then there would be little or no scope for government. In many cases, however, conditions for private market efficiency are violated. For example, if many people can enjoy the same good at the same time (non-rival, non-excludable consumption), then private markets may supply too little of that good. National defense is one example of non-rival consumption, or of a public good. In Economics, a public good is a good that is non-rivaled and non-excludable.

"Market failure" occurs when private markets do not allocate goods or services efficiently. The existence of market failure provides an efficiency-based rationale for collective or governmental provision of goods and services. Externalities, public goods, informational advantages, strong economies of scale, and network effects can cause market failures. In Economics, an externality is an impact on any party not directly involved in an economic decision In Economics, a public good is a good that is non-rivaled and non-excludable. Public provision via a government or a voluntary association, however, is subject to other inefficiencies, termed "government failure. "

Under broad assumptions, government decisions about the efficient scope and level of activities can be efficiently separated from decisions about the design of taxation systems (Diamond-Mirlees separation). In this view, public sector programs should be designed to maximize social benefits minus costs (cost-benefit analysis), and then revenues needed to pay for those expenditures should be raised through a taxation system that creates the fewest efficiency losses caused by distortion of economic activity as possible. The public sector is the part of economic and administrative life that deals with the delivery of goods and services by and for the Government, whether national Regional Cost-benefit analysis is a term that refers both to a formal discipline used to help appraise or assess the case for a Project or proposal which itself is Distortions in Economics refers to conditions that (in theory create Economic inefficiency In practice, government budgeting is substantially more complicated and often results in inefficient practices. Budget (from French bougette, purse generally refers to a list of all planned expenses and revenues

Government can pay for spending by borrowing (borrowing), although borrowing is a method of distributing tax burdens through time rather than a replacement for taxes. A deficit is the difference between government spending and revenues. A budget deficit occurs when an Entity (often a Government) spends more Money than it takes in The accumulation of deficits over time is the total public debt. Debt is that which is owed usually referencing Assets owed but the term can cover other obligations Deficit finance allows governments to smooth tax burdens over time, and gives governments an important fiscal policy tool. Fiscal policy, taking the scope of Budgetary policy, refers to government policy that attempts to influence the direction of the economy through changes in government taxes Deficits can also narrow the options of successor governments.

Public finance is closely connected to issues of income distribution and social equity. Income inequality metrics or income distribution metrics are techniques used by economists to measure the distribution of Income and Economic inequality Governments can reallocate income through transfer payments or by designing tax systems that treat high-income and low-income households differently. In Political science and Economics, a transfer payment is a payment of money from a government to an individual for which no good or service is required in return

The "Public Choice" approach to public finance seeks to explain how self-interested voters, politicians, and bureaucrats actually operate, rather than how they should operate.

Government expenditures

Main article: Government spending

Economists classify government expenditures into three main types. Government spending or government expenditure is classified by economists into three main types Government purchases of goods and services for current use are classed as government consumption. National Income and Product Accounts (NIPA use Double-entry accounting to report the monetary value and sources of output produced in a country and the distribution of incomes Government purchases of goods and services intended to create future benefits--- such as infrastructure investment or research spending--- are classed as government investment. National Income and Product Accounts (NIPA use Double-entry accounting to report the monetary value and sources of output produced in a country and the distribution of incomes Government expenditures that are not purchases of goods and services, and instead just represent transfers of money--- such as social security payments--- are called transfer payments. In Political science and Economics, a transfer payment is a payment of money from a government to an individual for which no good or service is required in return ^[1]

Government operations

Main article: Government operations

Government operations are those activities involved in the running of a state or a functional equivalent of a state (for example, tribes, secessionist movements or revolutionary movements) for the purpose of producing value for the citizens. This article aims to describe the financial expenditure associated with the operations and processes of world Governments of all levels A state is a political association with effective Sovereignty over a geographic Area and representing a Population. A tribe, viewed historically or developmentally consists of a Social group existing before the development of or outside of States Many anthropologists use Secession (derived from the Latin term secessio is the act of withdrawing from an organization union or especially a political entity A revolutionary when used as a noun is a person who either actively engages in some kind of Revolution, or advocates the revolution with recognition from some government or The economic value of a good or service has puzzled economists since the beginning of the discipline Government operations have the power to make, and the authority to enforce rules and laws within a civil, corporate, religious, academic, or other organization or group. A corporation is a separate legal entity usually used to conduct business A religion is a set of Tenets and practices often centered upon specific Supernatural and moral claims about Reality, the Cosmos An organization (or organisation &mdash see spelling differences) is a social arrangement which pursues collective goals which controls its own performance and ^[2] In its broadest sense, "to govern" means to rule over or supervise, whether over a state, a set group of people, or a collection of people. A state is a political association with effective Sovereignty over a geographic Area and representing a Population. ^[3]

Income distribution

Main article: Income distribution

Income distribution - Some forms of government expenditure are specifically intended to transfer income from some groups to others. Income inequality metrics or income distribution metrics are techniques used by economists to measure the distribution of Income and Economic inequality In Political science and Economics, a transfer payment is a payment of money from a government to an individual for which no good or service is required in return For example, governments sometimes transfer income to people that have suffered a loss due to natural disaster. Likewise, public pension programs transfer wealth from the young to the old. Other forms of government expenditure which represent purchases of goods and services also have the effect of changing the income distribution. For example, engaging in a war may transfer wealth to certain sectors of society. Public education transfers wealth to families with children in these schools. Public road construction transfers wealth from people that do not use the roads to those people that do (and to those that build the roads).
Income Security
Employment insurance
Health Care

Financing government expenditures

Budgeted revenues of governments in 2006

Government financing can be achieved by taxes, government borrowing, or seigniorage. Debt is that which is owed usually referencing Assets owed but the term can cover other obligations Seigniorage (ˈseɪnjərɪdʒ '''''sei'''nY'Ridj'') also spelled seignorage or seigneurage, is the net Revenue derived from the issuing of How a government chooses to finance its activities can have important effects on the distribution of income and wealth (income redistribution) and on the efficiency of markets (effect of taxes on market prices and efficiency). Income redistribution refers to a political policy intended to even the amount of income individuals are permitted to earn Taxes and subsidies have the effect of shifting the quantity and price of goods The issue of how taxes affect income distribution is closely related to tax incidence, which examines the distribution of tax burdens after market adjustments are taken into account. In Economics, tax incidence is the analysis of the effect of a particular Tax on the distribution of economic welfare. Public finance research also analyzes effects of the various types of taxes and types of borrowing as well as administrative concerns, such as tax enforcement.

Taxes

Main article: Tax

A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (for example, tribes, secessionist movements or revolutionary movements). Note This Wikipedia entry deals with the legal concept legal person. A state is a political association with effective Sovereignty over a geographic Area and representing a Population. A tribe, viewed historically or developmentally consists of a Social group existing before the development of or outside of States Many anthropologists use Secession (derived from the Latin term secessio is the act of withdrawing from an organization union or especially a political entity A revolutionary when used as a noun is a person who either actively engages in some kind of Revolution, or advocates the revolution with recognition from some government or Taxes could also be imposed by a subnational entity. Examples of administrative divisions English terms In many of the following terms corresponding to British cultural influence areas of relatively low mean population Taxes consist of direct tax or indirect tax, and may be paid in money or as corvée labor. The term direct tax has more than one meaning a colloquial meaning and in the United States a constitutional law meaning The term indirect tax has more than one meaning In the colloquial sense an indirect tax (such as Sales tax, Value added tax (VAT or Goods and services Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. Corvée is labour often but not always unpaid that persons in power have authority to compel their subjects to perform unless commuted in some way such as by a cash payment sometimes this was A tax may be defined as a "pecuniary burden laid upon individuals or property to support the government [ . . . ] a payment exacted by legislative authority. "^[4] A tax "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any contribution imposed by government [ . . . ] whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name. "^[5]

Debt

Main article: Government debt

Governments, like any other legal entity, can take out loans, issue bonds and make financial investments. Government debt (also known as public debt or national debt) is Money (or credit) owed by any level of government either Central government A loan is a type of Debt. This article focuses exclusively on monetary loans although in practice any material object might be lent In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest Investment or investing is a term with several closely-related meanings in Business management, Finance and Economics, related to saving Government debt (also known as public debt or national debt) is money (or credit) owed by any level of government; either central government, federal government, municipal government or local government. Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. Credit is the provision of resources (such as granting a Loan) by one party to another party where that second party does not reimburse the first party immediately thereby generating For the government of parliamentary systems see Executive (government. Central government or the national government (or in Federal states the Federal government) is the Government at the level of the Nation-state Local governments are administrative offices that are smaller than a State. Local governments are administrative offices that are smaller than a State. Some local governments issue bonds based on their taxing authority, such as tax increment bonds or revenue bonds. Tax Increment Financing, or TIF, is a public financing method which has been used for Redevelopment and community improvement projects in the United States A revenue bond is a special type of Municipal bond distinguished by its guarantee of repayment solely from Revenues generated by a specified revenue-generating entity

As the government represents the people, government debt can be seen as an indirect debt of the taxpayers. Government debt can be categorized as internal debt, owed to lenders within the country, and external debt, owed to foreign lenders. Internal debt is the part of a Country 's Debts that is owed to Creditors who are Citizens of that country External debt (or foreign debt) is that part of the total debt in a country that is owed to Creditors outside the country Governments usually borrow by issuing securities such as government bonds and bills. A security is a Fungible, Negotiable instrument representing financial value A government bond is a bond issued by a national government denominated in the country's own Currency. Less credit worthy countries sometimes borrow directly from commercial banks or international institutions such as the International Monetary Fund or the World Bank. A commercial bank is a type of Financial intermediary and a type of Bank.

Most government budgets are calculated on a cash basis, meaning that revenues are recognized when collected and outlays are recognized when paid. Some consider all government liabilities, including future pension payments and payments for goods and services the government has contracted for but not yet paid, as government debt. A pension is a steady income given to a person upon Retirement, typically in the form of a guaranteed annuity. This approach is called accrual accounting, meaning that obligations are recognized when they are acquired, or accrued, rather than when they are paid.

Seigniorage

Main article: Seigniorage

Seigniorage is the net revenue derived from the issuing of currency. Seigniorage (ˈseɪnjərɪdʒ '''''sei'''nY'Ridj'') also spelled seignorage or seigneurage, is the net Revenue derived from the issuing of In business revenue or revenues is Income that a company receives from its normal business activities usually from the sale of goods and services A currency is a unit of exchange, facilitating the transfer of Goods and/or services It is one form of Money, where money is It arises from the difference between the face value of a coin or bank note and the cost of producing, distributing and eventually retiring it from circulation. Face value is the value of a Coin, stamp or Paper money, as printed on the coin stamp or bill itself by the minting authority main - title Coin keywords numismatics coin review A banknote (often known as a bill, paper money or simply a note) is a kind of Negotiable instrument, a Promissory note made by a Seigniorage is an important source of revenue for some national banks. A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states

The role of public spending and taxes

Externalities and government policy

Internalization of externalities
The Coase Theorem. In Economics, an externality is an impact on any party not directly involved in an economic decision In Law and economics, the Coase theorem, attributed to Ronald Coase, describes the economic efficiency of an economic Allocation or outcome in The Coase theorem states that when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.

Public goods

Characteristics

characteristics of public goods are non - excludability and transferable. Non excludabilty means the consumption of the goods is not limited on specific group of consumers, that is the satisfaction of the people watching fireworks display is not limited to the owners of the fireworks. The transferability feature of the public goods means that the consumption of an individual will not lead to deprive the other, that is, if a consumer is doing fishing on a pond, another person may do fishing as well on the same pond.

The demand for pure public goods
Efficient output of a pure public good
The free rider problem

Public choice and the political process

Notes

^ Robert Barro and Vittorio Grilli (1994), European Macroeconomics, Ch. In Economics, Collective bargaining, Psychology and Political science, "free riders" are those who consume more than their fair share of a resource In Social choice theory, Arrow’s impossibility theorem, or Arrow’s paradox, demonstrates that no voting system can convert the ranked preferences of individuals Public choice in economic theory is the use of modern Economic tools to study problems that are traditionally in the province of Political science. The concept of right-financing was coined by English political economist Dr Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Fiscal incidence is a concept within Public finance, a sub-discipline within Economics, that refers to the combined overall economic impact of both Government Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities Public choice in economic theory is the use of modern Economic tools to study problems that are traditionally in the province of Political science. A government Budget is a legal document that is often passed by the Legislature, and approved by the Chief executive -or president 15-16. Macmillan, ISBN 0333577647.
^ Columbia Encyclopedia, Government, Columbia University Press
^ See for example, The American Heritage Dictionary of the English Language, entry "Govern"
^ Black's Law Dictionary, p. Black's Law Dictionary is the most widely-used Law dictionary for the Law of the United States. 1307 (5th ed. 1979).
^ Id.

References

Anthony B. Atkinson and Joseph E. Stiglitz (1980). Sir Anthony Barnes "Tony" Atkinson, FBA is a British Economist and has been a Senior Research Fellow of Nuffield College Oxford since 2005 Joseph Eugene Stiglitz (born February 9, 1943) is an American Economist and a professor at Columbia University. Lectures in Public Economics, McGraw-Hill Economics Handbook Series
James M. Buchanan and Richard A. James McGill Buchanan Jr (born October 3 1919 is an American Economist renowned for his work on Public choice theory, for which he won the 1986 Musgrave (1989). Public Finance and Public Choice: Two Contrasting Visions of the State. MIT Press Google book excerpts
Richard A. Musgrave (1959). Richard Abel Musgrave ( December 14, 1910 – January 15, 2007) was an American Economist of German heritage The Theory of Public Finance: A Study in Political Economy.
R.A. Musgrave (1987). Richard Abel Musgrave ( December 14, 1910 – January 15, 2007) was an American Economist of German heritage "public finance," The New Palgrave: A Dictionary of Economics, v. The New Palgrave A Dictionary of Economics (1987 is a 4-volume reference edited by John Eatwell, Murray Milgate and Peter Newman 3, pp. 1055-60.
Richard A. Musgrave and Peggy B. Musgrave (1973). Public Finance in Theory and Practice
Joseph E. Stiglitz (2000). Joseph Eugene Stiglitz (born February 9, 1943) is an American Economist and a professor at Columbia University. Economics of the Public Sector, 3rd ed. Norton.

External links

Moneyed Politicians
IMF--Dissemination Standards Bulletin Board-- Subscribing ... (see "fiscal sector")
The IMF's Public Financial Management Blog

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