In Public Finance, a critical look at some of the basic concepts clearly shows that Government Expenditures and Government Revenuse are two sides of the same coin and they are potent tools of Government’s fiscal policy. Discuss.
ECN 002—1-4-2021 (Online Discussion Quiz 1—-Understanding the Dynamics of Public Finance)
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Dr Anthony Orji
Senior Lecturer, Economics, UNN
Dr Anthony Orji is a Ph.D holder in Economics and a lecturer at the Department of Economics, University of Nigeria Nsukka.
He obtained his B.Sc, Msc and Ph.D Degrees from the University of Nigeria, Nsukka and a Post Graduate Diploma in Sustainable Local Economic Development (SLED) from Erasmus University, Rotterdam Netherlands.
Government expenditure is a term used to describe money that government spends. There is tendency for the public sector to expand as the as the economy grows. This does not only occur in developing countries it also occurs in developed countries. For instance as a country develops, so the economic expectations of its population rises. Such increasing expectations involves increased expenditure which the government is expected to manage. The larger the size of the population the more the government spends. Government spend on security sector, academic sector, industrial sector, and other infrastructural facilities.
Government revenue is referred to as money received by the government. It is an important tool of fiscal policy of the government. Government earn or receive revenue through taxes (income and wealth accumulation of
individuals and corporations, goods and services produced, exported from and imported to the country), dividends (government’s owned corporation, central bank revenue and capital receipt in form of external loans and debts from international financial institutions) and borrowing.
Fiscal policy is the term used to describe the actions a government takes to influence an economy by purchasing products and services from business and collecting taxes. Government expenditure and revenue are potent tools because they describe how the government collects taxes and purchase products and services from businesses.
GOVERNMENT EXPENDITURE
Government expenditure is referred to as the money spent by the public sector on the acquisition of goods and provision of services such as;
– education
– healthcare
– social protection
– defense etc
It is also referred to all government consumption ,investment and transfer payment, and this can be sourced through ;
– Taxes
– Goverment borrowing.
GOVERNMENT REVENUE
Government revenue is referred to as the money received by the government to enable it to undertake government expenditure,it is also a means of participating in distributing of social products which are the financial resources for ensuring the government to function. This can be sourced through ;
– Taxes
– Non taxes etc
FISCAL POLICY
Fiscal policy is the use of government revenue collection and expenditure to influence the country’s economy.
The reason why they are potent tool of government fiscal policy is that they are used to promote strong and sustainable monetary value.
GOVERNMENT EXPENDITURE
Government expenditure ie referred to the money spent by the public sector on the acquisition of goods and provision of services such as ;
*education
*healthcare
*social protection
*defense etc
It is also refers to as all government consumption, investment, and transfer payment, and it can be sourced from;
*taxes
*government borrowing.
GOVERNMENT REVENUE
Government revenue is referred to the money received by the government to enable it to undertake government expenditures ,it is also a means of participating in distributing of social products which are the financial resources for ensuring the government to function, and they can sourced from;
*taxes
*non- taxes.
FISCAL POLICY
Fiscal policy is the use of government revenue collection and expenditure to influence the country’s economy.
The reason why they are potent tool of government fiscal policy is that they are used to promote strong and sustainable monetary value.
Fiscal policy is used in conjunction with the Federal Reserve’s monetary policies which uses the supply of money and interest rates to influence inflation and lending. Its objective is to control the expansion and contraction of the Economy,General administrative of the the country,Defence and National security, Provision of social amenities,Serving of national dept, and miscellaneous(emergency).
The government has two tools it uses when implementing fiscal policy; the first one is collection of taxes on business (firms), personal income,capital gains, property and sales taxes. These provides the revenue that funds the government.
The second tool is government spending/expenditure; here funds are directed into subsidies, welfare, social programs,public works,infrastructure projects and government jobs. Government Expenditures are structured into 2 which are;
1.Capital expenditure: They are expenditures of government that are permanent in nature,they include money spent by the government on building or construction of roads, hospitals,dams,bridges,schools,pipe-borne water.
2.Re-current expenditure: They’re expenditures of government which are temporal in nature, they include money spent by the government on maintenance or servicing of the items in capital expenditure, including payment of workers salaries.
PUBLIC FINANCE
This can be defined as the study of government activities which may include spending deficit and taxation.The goal of public finance are to recognize when ,how and why the government should intervene in the current economy and also understand the possible outcomes of making changes in the market.
Richard Abel Musgrave (Dec 14,1910 – Jan 15,2007)was an American economist of German heritage .His most cited work is the theory of public finance (1959), described as”The first English language treatise in the field “and a major contribution to public finance thought.
IMPORTANT OF PUBLIC FINANCE
_ it is crucial for the development of a Nation as it deals with taxation and expenditure of different Civic organization.
_ it plays a vital role in acquiring the financial resource needed by an economy to achieve it’s social welfare.
_ punlic finance has proved to be an essential tools used by the government to overcome the challenges of inflation and deflation .
_ To maintain financial stability, utilization Of fiscal tools is most popular among the government of various nation’s .
DIVISIONS OF PUBLIC FINANCE
*PUBLIC EXPENDITURE: To ensure the sustainability of an economy it olis essential for government to utilize it’s capital in favor of the nation wisely .
*PUBLIC REVENUE: This division has a great significance in the development of a Nation as revenue is an essential factor for economy growth .
*PUBLIC DEBT :This division of public finance deals with the study of different methods used to raise debts and contributes to economy effects .
*FINANCIAL ADMINISTRATION:It acts as a contingency for an economy in the time of crises ensuring it sustainability.
COMPONENTS OF PUBLIC FINANCE
_Tax collection
_Deficit/surplus
_Expenditures
_National debt ..
Sir please I made a mistake on my reg number
The actual reg number is :UNN/J20/MGTSC/026
SIR I AM SO SORRY FOR THE CARELESSNESS..
Thank you Sir.
CONTINUATION: Government expenditure includes all government consumption, investment and transfer payment.Government expenditure can be financed by government borrowing,or taxes.Changes in government expenditure is a major component of fiscal policy used to stabilize the macroeconomic business cycle. Government revenue:It refers to the money received by a government from taxes and non-tax sources to enable it to undertake government expenditure.Some of the sources of government revenue are:. TAXES: It is a compulsory contribution to the state imposed on the citizens and firms inorder to finance government activities. RATES: It is a local taxation imposed on the locals and businesses charged as tax for local services. FISCAL POLICY: It can be defined as the use of government expenditure or taxation as a mechanism to influence an economy.There are two types of fiscal policy: expansionary fiscal policy and contradictory fiscal policy.Expansionary fiscal policy is an increase in government expenditure or decrease in taxation while contradictory fiscal policy is a decrease in government expenditure and increase in taxation.Expansionary fiscal policy can be used by government to stimulate an economy during a recession.For example an increase in government expenditure directly increases the demand for goods and services which can help output and employment.On the other hand, contradictory fiscal policy can be used by the government to cool down the economy during an economic boom. A decrease in government expenditure can help keep inflation in check.During economic downturns,in the short run, government expenditure can be changed either via automatic stabilization or discretionary stabilization.Automatic stabilization is when there is a reduction in tax burden and increase public spending without discretionary government actions.Discretionary stabilization is when a government takes action to change government expenditure or taxes in direct response to changes in the economy.For instance a government may decide to increase government spending as a result of a recession. With discretionary stabilization, the government must pass a new law to make changes in government John Maynard Keynes was one of the first economists to advocate for government deficit spending as part of the fiscal policy response to an economic contraction. According to Keynesian economics, increased government expenditure raises aggregate demand and increases consumption, which leads to increased production and faster recovery from recession. Classical economists,on the other hand believed that increased government expenditure exacerbates an economic contraction by shifting resources from the private sector, which they consider productive, to the public sector, which they consider unproductive.
What is Public Finance?
Public finance is the management of a country’s revenue, expenditures Expenditure. An expenditure represents a payment with either cash or credit to purchase goods or services. An expenditure is recorded at a single point in, and debt load through various government and quasi-government institutions. This guide provides an overview of how public finances are managed, what the various components of public finance are, and how to easily understand what all the numbers mean. A country’s financial position can be evaluated in much the same way as a business’ financial statements Three Financial Statements The three financial statements are the income statement, the balance sheet, and the statement of cash flows. These three core statements are.
Components of Public Finance
The main components of public finance include activities related to collecting revenue Sales revenue is the income received by a company from its sales of goods or the provision of services. In accounting, the terms “sales” and, making expenditures to support society, and implementing a financing strategy (such as issuing government debt). The main components include:
1. Tax collection
Tax collection is the main revenue source for governments. Examples of taxes collected by governments include sales tax, income tax (a type of progressive tax Progressive is a tax rate that increases as the taxable value goes up. It is usually segmented into tax brackets that progress to), estate tax, and property tax. Other types of revenue in this category include duties and tariffs on imports and revenue from any type of public services that are not free.
2. Budget
The budget is a plan of what the government intends to have as expenditures in a fiscal year. In the U.S., for example, the president submits to Congress a budget request, the House and Senate create bills for specific aspects of the budget, and then the President signs them into law. Read a copy of 2017 Budget of the U.S. government, as published by the Office of Management and Budget.
Expenditures
Expenditures are everything that a government actually spends money on, such as social programs, education, and infrastructure. Much of the government’s spending is a form of income or wealth redistribution, which is aimed at benefiting society as a whole. The actual expenditures may be greater than or less than the budget.
3. Deficit/Surplus
If the government spends more then it collects in revenue there is a deficit in that year. If the government has less expenditures than it collects in taxes, there is a surplus.
4. National Debt
If the government has a deficit (spending is greater than revenue), it will fund the difference by borrowing money and issuing national debt. The U.S. Treasury is responsible for issuing debt, and when there is a deficit, the Office of Debt Management (ODM) will make the decision to sell government securities to investors.
PUBLIC FINANCE
According to Prof. Dalton in his book Principles of Public Finance states that “Public Finance is concerned with income and expenditure of public authorities and with the adjustment of one to the other”
Public finance is the study of the role of the government in the economy. It is the branch of economics that assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones.
FISCAL POLICY
It can be defined as the revenue and expenditure instruments or policies used to control or regulate the economic activities in the country.
Public Finance can be classified into two which are:
-Government revenue and -Government expenditure
These two are the important tools of fiscal policy of the government.
GOVERNMENT REVENUE
It could be called also national revenue which is the money received by a government to finance or undertake government expenditure.
It could be gotten through the following means:
-Tax
-Rates
-Fees
-Licence fee
-Surplus of the public sector units
-Fine and penalties
-Gifts and grants
-Savings
-Printing of paper money and
-Borrowings.
GOVERNMENT EXPENDITURE
It could be called Government spending. It could be seen in three forms which are :
– ECONOMIC SERVICES:it includes; trade, agriculture, industry, mining,power stations, communication.
– SOCIAL SERVICES: it includes; education, healthcare delivery, market, environmental sanitation, infrastructural facilities.
– GENERAL ADMINISTRATION: it includes; civil services, political appointees, the embassies outside the country, many government departments.
– TRANSFER SERVICES: it includes; payment of pensions,granting of loans to friendly nations, services of public debts.
– DEFENCE: the government spends a huge amount of money on armours with the goal of protecting the country from any form terrorism, banditry and any unforeseen attack.
The period when the government revenue is greater than the government expenditure it’s considered as “BUDGET SURPLUS” and a period in the economy when the government revenue is less than the government expenditure it’s considered as “BUDGET DEFICIT”. This explains the dynamic public finance in an economy.
PUBLIC FINANCE:It can be defined as a branch of Economics that deals with government revenue and government expenditure.It is also the investment in the nature and principles of state revenue and state expenditure. GOVERNMENT EXPENDITURE:It refers to money spent by the public sector on the acquisition of goods and provision of services such as education, healthcare, social protection e.t.c.
In my country Nigeria for the economy of the country to be adequate, the instruments of fiscal policy must be used and the country must spend and gain income in many cases in the country. In Nigeria for example the economy aspect that deals with the country’s GOVERNMENT REVENUE and the GOVERNMENT EXPENDITURE are professionally known as PUBLIC FINANCE. So, public finance can critically be defined as a branch of an economy which involves the financial activities of government as relates the revenue, expenditure and debt operation and their overall effect on the country’s government economy.
First and foremost, FISCAL POLICY can be defined as the revenue and expenditure instruments or policies used to control or regulate the economic activities in the country. Public finance ensures that ab acceptable fiscal policy is attained which result to a successful fiscal policy. The instruments that are used in regulating the country’s economy namely;
(1) Government revenue or income and
(2) Government expenditure or spendings
The government revenue can be seen as the income that accrues to all levels of government (Local, State, Federal)or money received through some profitable means.
It is a plain action by country’s government partaining the raising of government revenue through taxation,loans, fees, fines, savings. The government revenue is an important tool of fiscal policy because it shows the capacity of the country’s wealth and how developed the country is. The other instrument of fiscal policy is the government expenditure. Government expenditure can be defined as the total expenses incurred by all level of administration (Local, State, Federal) government in the country. It the spendings that are made by government in orthe to acquire some services which are: social services, economic services, transfer services, general administration, defense and security.
Furthermore,the government spends money in other to achieve so services which are explained as: (I) ECONOMIC SERVICES:it includes; trade, agriculture, industry, mining,power stations, communication.
(ii) SOCIAL SERVICES: it includes; education, healthcare delivery, market, environmental sanitation, infrastructural facilities.
(iii) GENERAL ADMINISTRATION: it includes; civil services, political appointees, the embassies outside the country, many government departments.
(iv) TRANSFER SERVICES: it includes; payment of pensions,granting of loans to friendly nations, services of public debts.
(v) DEFENCE: the government spends a huge amount of money on armours with the goal of protecting the country from any form terrorism, banditry and any unforeseen attack.
In conclusion,the economy of Nigeria as a country relies on the fiscal policy instruments which are GOVERNMENT REVENUE AND GOVERNMENT EXPENDITURE. The fiscal policy of a country are usually incorporated in the budget which helps in directing economic activities in the country which categories the revenue and expenses of the government. The period when the government revenue is greater than the government expenditure it’s considered as “BUDGET SURPLUS” and a period in the economy when the government revenue is less than the government expenditure it’s considered as “BUDGET DEFICIT”. This explains the dynamic public finance in an economy.
PUBLIC FINANCE
It could be said to be the study of of the pole of. Government in an economy, stating it as a branch of Economics that assess the government revenue and expenditure of the public authorities having a positive impact on the economy. The purview of the public Finance which are ; 1) The efficient allocation of available resources, 2) The distribution of income among citizens ,and 3) The stability of the economy, are said to be the the threefold mission of government in an economy. Public Finance can be classified into two which are Government revenue and expenditure which are the important tools of fiscal policy of the government.
GOVERNMENT REVENUE
It could be called also national revenue which is the money received by a government to finance or undertake government expenditure . Ways it is gotten can be divided into two which are:
1. TAXES :This a compulsory levy placed on the income and wealth distribution of the citizens , the goods and services produced, and the goods and services imported from outside & exported into other countries.
2.NON – TAXES SOURCES: These are government owned corporations’ income, central bank revenue, capital receipts,e.t.c.
also we can see what is called SEIGNORAGE which means government act towards deflating the value of its currency in exchange for surplus revenue.
GOVERNMENT EXPENDITURE
It could be called Government spending. It could be seen in three forms which are :
1). GOVERNMENT CONSUMPTION: government purchases for goods and services for current uses.
2). GOVERNMENT INVESTMENT: Government purchases of goods and services intending to create future benefits such as infrastructure investment or research spending.
3).TRANSFER PAYMENTS: Government expenditure not involving purchase of goods and services, but represent the transfer of money such as social security payments.
GOVERNMENT OPERATIONS
These are activities involved in running of a state or a functional equivalent of a state (for example like tribe, secessionist or revolutionary movements e.t.c.) for the producing values for the citizens. It has the power to make and authority to enforce rules and laws within a civil, corporate, religious, academic or other organizations or groups.government expenditure could be financed through different forms which are taxes ,non – tax sources like capital receipts, central bank revenue,e.t.c , government borrowing, National Debt, e.t.c.
FISCAL POLICY
It is the use of government revenue collection (taxes and tax cuts) and expenditure to influence the country’s economy. Stating earlier the essence of government revenue and expenditure being the main essential tools of fiscal policy making the role of Government in an economy effective.
METHODS OF FISCAL POLICY SPENDING
1. Taxation 2. Seignorage 3. Borrowing from within population or abroad. 4. Sales of fixed assets.e.g.land. 5. Selling equality to this population.
6. Dripping in fiscal resources; A fiscal surplus is often saved for future use and may be interested in either local currency or any financial instrument that may be traded later once resources are needed.
7. Fiscal Straitjacket; This concept is a general economic principle that suggests strict constraints on government spending and public sector to limit or regulate a budget deficit over a time period.
ECONOMIC EFFECTS OF FISCAL POLICY
Government uses fiscal policy to influence the level of aggregate demand ln the economy, so that certain economic goals can be achieved; Price stability, full employment rate, economic growth,e.t.c.
PUBLIC FINANCE
Public finance can be defined as the study of government activities, which may include spending, deficits and taxation. The goals of public finance are to recognize when, how and why the government should intervene in the current economy, and also understand the possible outcomes of making changes in the market. In addition, public finance can involve issues outside of the economy, including accounting, law and public finance management.
Public Finance can be classified into two which are Government revenue and expenditure which are the important tools of fiscal policy of the government.
. Understanding the role of the government and how changes may affect the economy are a few important aspects of public finance professionals. When the government intervenes and takes action within the economy, the outcomes are classified into one of three categories: economic efficiency, distribution of income or macroeconomic stabilization
.
COMPONENTS OF PUBLIC FINANCE
The main components of public finance include activities related to collecting revenue, making expenditures to support society, and implementing a financing strategy (such as issuing government debt). The main components include:
Tax collection
Tax collection is the main revenue source for governments. Examples of taxes collected by governments include sales tax, income tax (a type of progressive tax), estate tax, and property tax. Other types of revenue in this category include duties and tariffs on imports and revenue from any type of public services that are not free.
Budget
The budget is a plan of what the government intends to have as expenditures in a fiscal year. In the U.S., for example, the president submits to Congress a budget request, the House and Senate create bills for specific aspects of the budget, and then the President signs them into law. Read a copy of 2017 Budget of the U.S. government, as published by the Office of Management and Budget.
Expenditures
Expenditures are everything that a government actually spends money on, such as social programs, education, and infrastructure. Much of the government’s spending is a form of income or wealth redistribution, which is aimed at benefiting society as a whole. The actual expenditures may be greater than or less than the budget.
Deficit/Surplus
If the government spends more then it collects in revenue there is a deficit in that year. If the government has less expenditures than it collects in taxes, there is a surplus.
National Debt
If the government has a deficit (spending is greater than revenue), it will fund the difference by borrowing money and issuing national debt. The U.S. Treasury is responsible for issuing debt, and when there is a deficit, the Office of Debt Management (ODM) will make the decision to sell government securities to investors.
Government revenue is money received by a government from taxes and non- taxes sources to enable it embark on government expenditures. The tax source are taxes on income and wealth accumulation of individuals and corporation and on the goods and services produced, exported and imported. Non-task revenue are dividend from government-owned corporations, central bank revenue and capital receipts in the form of external loans and debts from international financial institutions.
On the other hand, government expenditure inclusively, government consumption which entails the acquisition of goods and services for current use to directly satisfy the individual or collective needs of the community, government investment; the acquisition of goods and services intended to create future benefits known as infrastructure investment or research spending or research spending, and lastly, transfer payments; like unemployment or retirement benefits are government budget along side the government revenue.
These government budget are vital tools for go
government fiscal policy. For clarification purpose, fiscal policy is said to be, the use of government spending and taxation as a mechanism to influence an economy. There are two types of fiscal policy; Expansionary fiscal policy and contractionary fiscal policy. The initial type of fiscal policy means increase in government spending, the government uses this policy to stimulate the economy during a recession for example, an increase in government demand for goods and services to enhance output and employment. Whereas, the latter means decrease in government spending or an increase in taxes. It is used by the government to cool down the economy during economic boom. It can also help keep inflation in check.
John Maynard Keynes was one of the first economist to advocate for government deficit spending as a part of the fiscal policy response to an economic contraction. According to him, increased government spending raises aggregate demand and increases consumption, which leads to increased production and faster recovery from recessions.
Government revenue is money received by a government from taxes and non- taxes sources to enable it embark on government expenditures. The tax source are taxes on income and wealth accumulation of individuals and corporation and on the goods and services produced, exported and imported. Non-task revenue are divided from government-owned corporations, central bank revenue and capital receipts in the form of external loans and debts from international financial institutions.
On the other hand, government expenditure inclusively, government consumption which entails the acquisition of goods and services for current use to directly satisfy the individual or collective needs of the community, government investment; the acquisition of goods and services intended to create future benefits known as infrastructure investment or research spending or research spending, and lastly, transfer payments; like unemployment or retirement benefits are government budget along side the government revenue.
These government budget are vital tools for go
government fiscal policy. For clarification purpose, fiscal policy is said to be, the use of government spending and taxation as a mechanism to influence an economy. There are two types of fiscal policy; Expansionary fiscal policy and contractionary fiscal policy. The initial type of fiscal policy means increase in government spending, the government uses this policy to stimulate the economy during a recession for example, an increase in government demand for goods and services to enhance output and employment. Whereas, the latter means decrease in government spending or an increase in taxes. It is used by the government to cool down the economy during economic boom. It can also help keep inflation in check.
John Maynard Keynes was one of the first economist to advocate for government deficit spending as a part of the fiscal policy response to an economic contraction. According to him, increased government spending raises aggregate demand and increases consumption, which leads to increased production and faster recovery from recessions.
As the economy of the government affect the public as a whole Public Finance tends to explore the government dealings in terms of it spending and revenue allocation therefore Public Finance is a branch that studies the activities of government of it policies to control and improvise the implements taken at the government level to oversee the effects of the economy publicly.
Public Finance serves as an instrument to control and regulate the economic activities of the country as a form of fiscal policy.The primary objective of the Public Finance involves the means for equitable distribution of income across all sectors of the economy of the country,it also helps to generate revenue through taxation among private individuals and corporate bodies.Most importantly the Public Finance is responsible for the price stabilisation which helps to prevent frequent fluctuation and other related issues like inflation.
Government revenue refers to the revenue of government finance by means of participating in the distribution of social products, which is the financial resources for ensuring the government functions.
Government expenditure refers to the distribution and use of the funds the government finance has raised, so as to meet the needs of economic construction and various causes. Making them(Government revenue & Government expenditure) closely related as potent tools of government’s fiscal policy although seems different.
Government spending/expenditure is a fiscal policy tool because it has the power to raise or lower real GDP. By adjusting government spending, the government can influence economic output. While Government revenue which special example can be taxation. Taxes are fiscal policy tool because in taxes affect the average consumer’s income, and changes in consumption lead to changes in real GDP . so by adjusting taxes government can influence economic output.
Fiscal policy, therefore is the use of government spending taxation and transfer payments to influence aggregate demand and therefore, real GDP. In other words fiscal policy is the use of government revenue collection and expenditure to influence the country’s economy.
Public finance can be said to be how government generates and spend her income, whereby the income generated and the expenditure are all part of the government fiscal policy.
Revenues can be divided into two namely: capital revenue and concurrent revenue.
Capital revenue as mentioned above are incomes gotten from regular sources like assets while concurrent revenue can be said as income coming from sources which can be changed therefore can be said as non-static, same thing applies to expenditure except that expenditure expenses.
The two instruments mentioned above make up what is generally known as fiscal policy, which the government uses to control the economy, like the use of taxes, duties, fees and fines to control income or wealth accumulation hereby increasing government income also using infrastructural construction to inject income into the economy
Government revenue is Money received by the government, it’s an important two side fiscal policy of government it is the opposite of govt spending.
Revenue earn by the government are gotten from sources like taxation, income,whealth accumulation of the households and cooperation
On the commodities produced, import&export.non_taxable sources such as central bank revenue, capital receipts etc.