Public Finance: Tool for both Citizens and Governments

Public finance, as an academic field, is under the broader subject of Economics; public finance is concerned about how governments raise money (public revenues), how that money is spent (public expenditures), as well as predicts or explains the impacts of these activities – be these may be economic, political and societal.

Public finance is a tool used by citizens to confirm public office accountability.  A government provides public goods – products or services which may be used or availed by any one person which will not affect the supply to others, and for which it is impractical to charge individually.  A private citizen will not be willing to pay for these even for personal use, and because of that, businesses have no interest to produce these.  And because public goods are not really affected by a market economy, public finance may deal with how government adheres to provision of such goods.

Public finance is also employed by a government to address – correct, minimize, or in other cases withstand – the unwanted side effects of the market, called spill overs or externalities.  For example, a lot of industrial activities contribute to transfer of materials and equipments, thereby causing traffic congestion.  Industries earn from their activities, and therefore have financial incentive to continue doing these activities and at the same time continue to contribute to traffic congestion; traffic congestion is a spill over because it affects those who are not responsible for it.  The government in charge may be able to respond to this issue by passing laws limiting congestion or creating different traffic schedules.