Public finance deals with how a Government raises revenues to meet its expenditure. As Dalton says, public finance is “concerned with the income and expenditure of public authorities and with the adjustment of one to the other.” Public finance studies the way in which the government manages its income, expenditure and loans.
Importance of Public Finance: The government’* activities of mobilizing revenue, incurring expenditure and raising loans are part of its fiscal policy. The objectives of fiscal policy are to achieve economic growth, maintain economic (price) stability, and achieve a fair distribution of income.
The government usually spends the revenue collected through taxes or the money raised through borrowings for development activities. This increases the growth rate of the economy and benefits everyone. Similarly, by spending more during recession and controlling expenditure during inflation, the government tries to regulate the economic activities.
Since all these are part of the annual budget prepared by the government, the study of public finance also helps in analysis and evaluation of budgets.
