PPA 603: Public Budgeting System
November 12, 2012
Explain the philosophy of public finance.
The philosophy of public finance is based on raising funds for public purposes. The writer maintains that public finance may also be defined as a science because (1) it deals with a definite and limited field of human knowledge. (2) It admits of an orderly arrangement of its facts and principles, and contains many laws of general progress belonging exclusively to its own field; (3) it admits of the application of scientific methods of investigation; (4) it foresees as well as explains a certain class of phenomena; (5) it is generally, if not universally, so regarded. It is however, a secondary or dependent science. It is closely related to two other sciences, upon which it properly depends (Plehn, C.1996 para.1). One may initially think that the meaning of ‘public finance’ is perfectly clear, being money raised and spent by the state: raised from taxes and spent on services in promoting the public interest, particularly in terms of benefiting the poor. This ‘tax and spend’ model of public finance is, in fact, a severely distorted perception. It is distorted for three reasons: ■ Taxation is not the only source of public finance
■ Public finance is not spent only on public services or welfare payments ■ ‘The public interest’ is conceptually vague and meaningless in practical terms (Cullis, J. and Jones, P. 1998 p.3).
A comprehensive definition of public finance would have to encompass the following characteristics:
■ it is money raised from a wide variety of sources by the state and its agencies ■ including taxes, sales, fees, charges, borrowing, lotteries, donations and bequests, payments in kind and so on.
■ disbursed within the public sector, and often in the private and voluntary sectors.
■ to individuals, families, companies and service organizations. ■ both at home and abroad.
References: Copley, P.A. and Engstrom, J.H (2007) Essentials of Accounting for Governmental and Not-for-Profit Organizations, 8/e McGraw-Hill
Cullis, J. and Jones, P. (1998) Public Finance and Public Choice: Analytical Perspectives
(second edition) (Maidenhead: McGraw-Hill).
Plehn, Carl. (1996). Introduction to Public Finances. Norwood Publication Retrieved November 11, 2012 from http://chestofbooks.com/finance/Carl-Copping-Plehn/Introduction-To-Public-Finance/index.html
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