The license fee includes the fees charged for the attainment of the license from various industries like petroleum, communication services, broadcasting, and more. The most important of these bodies in the context of a developing economy is the public works programmes which are essential to … It further helps to strengthen the capacity to save and consume. It has a very important role in achieving objectives like full employment and price stability. The purview of public finance is considered to be threefold, consisting of governmental effects on: The efficient … An empirical investigation of 56 developing countries is used to assess this role of the government and to evaluate whether it is facilitating or hindering the process of economic development. b) Public Finance is an art: In the words of J.N. Public finance works on cutting down these disparities by its distributing function. In underdeveloped economies, there is a very serious problem regarding inequalities in the distribution of income and wealth. When there is more prosperity in the economy and the people are earning more and more, the government increase the tax rate and during deflation government reduces the tax rate thereby increasing the demand. The economy continues to face blooms and depression. The Role of Public Finance. Economic stability: Do you want to crack UPSC in first attempt? Subsidies and grants: The governments these days, give subsidies and grants to different industries to enable them to increase the production of essential goods in the country. For developing and underdeveloped nations this role becomes even more prominent. Keynes, ”Art is the application of knowledge for achieving definite objectives.” Fiscal policy which is an important instrument of public finance makes use of the knowledge of the government’s revenue and expenditure to achieve the objectives of full employment, economic equality , economic development and price stability, etc. The revenue receipts are recurring in nature. 4) Public finance provides many a programme for moderating the incomes of the rich and the poor. Asia, Africa, and Latin America. Public finance is also used as a tool to stabilize the economy by the government. We can divide the public finance into five sections which are-Public Revenue; Public Expenditure; Public Department; Fiscal Policy; Financial Administration; The Public Department functions under the direct control of the Chief Secretary and deals with important matters that concern the General Administration of the State. 3. Businesses and industries are financed by the financial systems which lead to growth in employment and in turn increase economic activity and domestic trade. It is simply concerned with and deals with the revenue and expenses of the government.eval(ez_write_tag([[300,250],'commercemates_com-medrectangle-4','ezslot_6',121,'0','0'])); It shows how the government manages its incomes and expenditures for the attainment of its objectives that is the overall development of the community. It revolves around the role of government income and expenditure in the economy. There are several effects of public expenditure on the economy. It helps in the corrective distribution by charging high taxes from the rich and paying subsidies to the poor, by using the technique of progressive taxation, or by imposing high taxes on the luxury goods. Economic Development: Economic development means a rise in the living standard of the people. An export subsidy is the support of the government, that is extended for the products that are exported. So to promote equal distribution government need to invest in the development activities for the poor people. They can promote economic development in the following ways. It is a common law doctrine which transfers the real property of a person who has died without heirs to the State. Limitations of Monetary Policy in Developing Economy (i) Underdeveloped Money and Capital Market. The above three major functions are important for the running and … It is the finance related to public economics as it is field of economics concerned with how government raise money, how that money is spent and the effect of these activities on society. It happens when the government raises the taxes to fund the introduction of new welfare programs or the expansion of the existing ones. This means that in all those countries, there will be common economic policies, such as common investment, trade, commerce, commercial law, employment legislation, old age pension, transport co-ordination, etc. They can promote economic development in the following ways. Private goods are exclusive, this means that the person buying them will get the benefits from it. Functions of Public finance. It helps the economy to grow as a whole and promote development in the areas that have been earlier left behind. During inflation, it reduces the indirect taxes and genera expenditures but increases direct taxes and capital expenditure. Tax and Subsidies are also some of the mechanisms of public finance. Some of them are listed below: This subsidy helps to encourage the suppliers to increase the output of a particular product by helping them cut their costs. Public expenditure, therefore, plays capital role in economic development of an under-developed economy. 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