Economics Notes: Public Finance (Part-I)

Economics Notes: Public Finance (Part-I) 

PUBLIC FINANCE

Meaning of Budget – Government budget is an annual statement, showing the item-wise estimation of receipts & expenditure during a fiscal year.

Elements of Budget 

1. It is a statement that shows estimated receipts & estimated expenditure during a fiscal year.

2. It shows estimates of government receipts & expenditure during a fixed period generally in a year.

3. Budget requires the approval by the parliament.

Objectives of Government Budget 

1. Reallocation of resources

2. Redistribution of income & wealth 

3. Economic stability

4. Management of public Enterprises

5. Promotion of economic development

NOTE-In short, a budget is a powerful weapon in the hands of government through which it can affect the generation, distribution & spending of National Income.

Structure of the Budget – The components of budget can also be categorised according to receipts & expenditures. On this basis two broad components are as follows:-

A. Budget receipts

B. Budget expenditure

Budget receipts- It refers of estimated money receipts of the government from all sources during the fiscal year.

Budget receipts are classified as

1. Revenue receipts

2. Capital receipts

Revenue receipts- It refers to those receipts of the government which neither create a liability nor lead to reduction in assets.

For example- revenue from taxes is a revenue receipt as it does involve any corresponding liability for the government.

Tax is a unilateral (one-sided) compulsory payment by people to the government. Taxes do not have to be repaid by the government in future.