Abstract
The research paper identifies and analyzes the social effects the central deficit has on government financing. It also addresses the factors relating to why public financial administration is studied separately from business finance. A variety of organizations nonprofit organizations, private firms, and agencies of government ensure the provision of goods and services of daily consumption. All these provisions are under the principles of market trade. The services are provided to us by businesses for payment in turn. No service no pay. This also applies to many nonprofit organizations like social service organizations that function on the government contracts and basis of charges. The paper also outlines how inadequate government financing impacts business transactions. The business sector tends to be caught in a dilemma when the government fails to fulfill its role in business. The paper also shows the importance of taxation in the improvement of a country’s economy.
Introduction
Currently, administrations of public finance apply the concepts and tools of business management. In any business activity, financial management aims at increasing the organization’s value to its owners through control and allocation of resources. Similarly, public financial management applies the same technical, analytic, and managerial instruments in its control and allocation. The government greatly differs from the private sector in terms of objectives, resource constraints, and ownership. Particularly, the government has the authority to enlarge its resources through taxation. The owner is not so defined due to the fact that most of the stakeholders contribute to a legal interest in the government planning and the value of the services from the government is neither reflected nor easy to count in a solitary measure. With all these differences, there is a government’s taxation power, punish and prohibition. The ability to compel even inequalities differentiates government from most basic practices in business finance.
The main fundamental principles and public finance include the public income, the expenditure, and the public debts of the public authorities and how one of them adjusts the other. The adjustments should not imply equality but arithmetical associations in conditions given are best. Public authorities consist of all kinds of governmental territories ranging from community to national, central, and even international governments (Wellisch 2000). They widely differ in terms of the magnitude of the zone and populations they govern, their functional range of exercise, their income obtaining methods, how their use their expenditure, and how they relate with other public authorities in terms of financial relations, either subordinate or superior to themselves. In the current civilized societies, the public’s income and expenditure are comprised of money payments and money receipts. The term finance implies money matters while their management and public finance in its current sense presume the existence of money finance.
The principle of maximum social advantage
The superficial shallow precepts and views of the earlier age still haunt public finance. The best plan of finance is to spend the little one has and also the best tax is the one which is least in amount. It should not be noted that taxation is evil. At the same time, it should not be admitted that all public expenditure is wise. Spending on unnecessary activities like wars is civil. It is quite hard to fund in any public expenditure scheme, some of the elements which are being wasteful or have more harm than good. It is also hard to have a complete evaluation of any operation in public finance with no balance against one another on both sides of the process, the effects of spending, and the effects of rising of the public revenue. Full employment is accepted as one of the economic aims of an organized society. It is defended because it increases production, promotes greater quality of incomes, and also for its own sake. Prolonged or widespread cases of unemployment are treated as an offense against human beings. Also, full employment as from 1945 in Britain has been their greatest peacetime revolution. In addition, the statesman is the future’s trustee, no less than for the present (Jensen 1924). As individuals die, the community which they form part of lives on. Therefore, the statesman should prefer a social advantage that is larger in the future to today’s smaller one.
Public and private finance
It is informative to have a comparison between public and public finance. As an individual determines his or her possible expenditure, at the same time the authority’s expenditure decides on its necessary income i.e. as individuals do adjustments on expenditure to income, the authorities in public have adjustments of income to expenditure. In some cases, individuals can adjust their income to expenditures. There should be no exactness in an individual’s adjustment of income and expenditure in any given year. Also, much expenditure especially by public authorities is usually based on legitimacy contracts or on resultant assurances which cannot be contrasted at a short notice. Moreover, a public authority is in a much better place when making a purposeful change in its expenditure and income. The main reason for this is it has all taxable wealth from the society on which to draw. It also has the advantage of increasing the external loans.
Market failure and the functions of government
There has been a question on why private businesses trading their products in the free market do not depend on the provision of all goods and services that should be available. According to the president’s council of economic advisers, he suggests that if there is competitiveness and smooth functioning, they will, in turn, contribute to costs at which the sellers need to supply equals the quality buyers require. In addition, any market prices will concurrently equal the benefits buyers achieve from the marginal benefits and the production cost of the last supplied unit. If the two conditions could hold in all markets, they could ensure sufficiency. The labor of a nation among other resources is allocated in the production of particular services or goods if consumers would not wish to make more payments so as to have the resources engaged elsewhere (Blinder 1974).
Markets create a productive competence of the economy to be utilized in the production of what people most need and cause the least likely amount of resources for production.
This could be an important result in a world of inadequate resources. However, there remains a vital role for the government although the private markets can have delivery of most goods and services, and have low cost in delivery. Definitely, there is a significant comparative association between healthy markets and healthy government. There should be the discouragement of frauds and enforcement of deals in absence of a governmental legitimate system to ensure rights enforcement and enforce contracts, market exchange and corporate organizations would be practically impossible. Free market and anarchy are not identical. At least, government at its protective elements is necessary if at all the markets are to exist. The government at the same time can acquire a vital report from the market data and utilize the markets as a competent mechanism for implementation of public policy and obtain goods, and services in the market operations for the provision of government services. The market economy demands proper functioning of the government, and also the government requires the market economy if at all they are to deliver to the public interest. However, the government extends far much allowing the market to function because the market’s system is not able to sustain to perform popular activities.
Public Goods
Due to some good’s natural variation, they cannot be supplied in the market, and if supplied they will be insufficient. The problem arises from two properties:
- Nonrivalry or non-exhaustion which occurs when service benefits can only be shared implying that the specific quantity of service can be achieved through adding people without reducing benefits to the present population.
- Inability to eliminate nonpayers which arises when there is no limitation of benefits to those who have compensated for the services (Blinder 1974).
The public goods comprise national defense, population control, disease control, and mosquito abatement. The common attributes of these services are the moment they are made available it is impossible to deny those who have not paid for them. This is known as non-exclusion, the other characteristic is that any figure of people can use the same product or service at the same time without exhausting the quantity of that good access to everyone which is referred to as nonrivalry or nonexhaustion.
Externalities
Market deals between seller and buyer may have an effect on the third party. It may result in negative impacts. A positive externality leads to the good in question being produced in small quantities. A negative or undesirable externality has the opposite effect of the overproduction of goods. Failure to compete is another principle of public finance. Competition in marketing sets up efficiencies of markets. In the cases where few firms serve the market, they may engage in monopoly power to increase prices than economic conditions justified so as to collect excess profits. Governments keep watching markets in ensuring that obstacles do not exist so as to prevent new business firms from entering the market because new firms entry in the industry best prevention to monopoly charging.
Incomplete markets and imperfect information
There is often a government intervention when clients have deficient knowledge about the products. It is feared that unrestricted forces of the market will not give the required information in a timely fashion (Holcombe 1983). For instance, the governments play a role in testing new products like drugs, prevents the selling of hazardous products, implement certain discovery measures among others. The market may eventually give information but not until after much suffering and grief by the credulous.
Economic stabilization
It is the role of the government to stabilize both the micro economy and macroeconomy. This is achieved through the prevention of high unemployment, control of inflation that could impact the purchasing power and alter financial marketers, and also improvement of the prospects for high-quality life and economic growth. Monetary policy and fiscal policies are used by the government in the correction of the aggregate breakdowns of the market, although there exists a continuous controversy about the extent to which the policies can yield active performance and improvement. However, there is no evidence that poor government suggestions in the use of funding of government programs and national resources in wrong fashions can lead to a stern economic crisis (Holcombe 1983).
Federal governments worry about the status of the national economy, while the sub-national units including cities, regions, and states try to find ways of improving their own specific share of such a national economy. Also, some governments try industrial policy, tax advantages prepared to stimulate certain industries, targeted subsidies in the notion that they can improve economic growth and have a reduction of employment through boosting operations designed to be global or even national leaders. More so the government bureaucrats and politician’s capacity in picking winners is better than can markets do absolutely mixed, although that does not limit them from attempting as they organize the public finances.
Privatization
Argumentation has been made by modern societies about where the line should be drawn between the provision of goods and services by the market and the provisions by the government. To achieve efficiency most of the governments have downsized the public sectors, in the notion that provision by the market may provide more options of service to the public, lower costs of operation, and more flexibility in response to service. With all the possible advantages, the privatization of government operations has been taken as an attractive option. Privatization includes (1) transferring to the private sector of business owned by the government with natural control power particularly electricity and telecommunications, (2) transferring a business owned by the government to a private sector that deals with gods and services that do not have important market failures, and (3) making agreement out of openly financed services to private trade, utilizing franchise agreements or service contracts (Prest 1963).
Use efficiency improvements of principles of public finance
Generally, principles of public finance play an important role in any given business. They provide guidelines on measures of how the business activity should be conducted. Traders are in a position of learning the current economic aspects which can greatly contribute to either success or failure of their business activities. On the side of government, there is easy analysis on the non-performing organizations and firms after which necessary steps are taken, for instance, through privatization. Some aspects like competition in the market are well and easily identified which leads eliminates monopoly in pricing. A marketplace without competition in trading exploits the customers through rising prices of the products, so as to gain more profits. At the same time, new firms and industries are not deterred from entering such a competitive market. The government is also in a position of regulating the industries due to cost advantage to the bigger firms which seem doomed to be dominated by bigger firms. In case of market failure, the governments the government implements strategies on achieving efficiency in a transaction. Also, the government should ensure that the key conditions of efficiency which are the marginal cost and the marginal benefits are maintained. The government also plays a role in ensuring that public goods are available, well-distributed, and accessible to everyone. It should ensure the failure of exclusion of public goods which is the main characteristic of the public good.
References
Blinder A, (1974). The Economics of Public Finance. Washington.
Holcombe R, (1983). Public Finance and the Political Process. Carbondale.
Jensen J, (1924). Problems of Public Finance. New York.
Prest A, (1963). Public Finance in Underdeveloped Countries. New York.
Wellisch D, (2000). Theory of Public Finance in a Federal State. Cambridge.