KWARA STATE POLYTECHNIC,

ILORIN

INSTITUTE OF FINANCE AND MANAGEMENT STUDIES

DEPARTMENT OF BUSINESS ADMISTRATION

COURSE TITLE: PUBLIC FINANCE

COURSE CODE: BAM 216

BY
JIMOH ADIJAT TEMITOPE
ND/22/BAM/PT/809

1. Discuss the major aspects of public finance

2. Explain the benefits or purpose of tax
3. Discuss the various source of public income known to you
4. Discuss the reasons for increase in cost expenditures
5. What are the purpose of public debt
6. ⁠highlight the merit and demerit of direct tax.

SUBMITTED TO:
Mr. SAFURA
I. MAJOR ASPECTS OF PUBLIC FINANCE
Public finance deals with the financial activities of governments at various levels (local, regional,
national) and encompasses several key aspects:

1. Revenue Generation: Governments need revenue to fund their activities. Revenue can
be generated through taxes (income tax, sales tax, property tax), fees (for services like
issuing permits or licenses), fines, tariffs, and other sources.
2. Expenditure Allocation: Governments allocate their revenue to various areas such as
healthcare, education, defense, infrastructure, social welfare programs, and more.
Prioritizing and allocating funds efficiently is crucial to meeting public needs and
achieving policy goals.
3. Budgeting: Budgeting involves the process of estimating revenue, determining
expenditure priorities, and planning how to allocate resources over a specific period
(usually annually). Governments prepare budgets to manage their finances effectively
and transparently.
4. Public Debt Management: Governments often borrow money to finance projects or
cover budget deficits. Public debt management involves issuing bonds, managing debt
levels, and ensuring debt sustainability to avoid fiscal crises and maintain investor
confidence.
5. Fiscal Policy: Governments use fiscal policy to influence economic conditions and
achieve macroeconomic objectives such as economic growth, price stability, and full
employment. Fiscal policy tools include taxation, government spending, and borrowing.
6. Taxation: Taxation is a primary source of government revenue. Tax systems vary across
countries and can be progressive (where tax rates increase with income), regressive
(where tax rates decrease as income rises), or proportional (where tax rates remain
constant regardless of income).
7. Subsidies and Transfers: Governments provide subsidies to support certain industries
or activities deemed beneficial to the economy or society. They also distribute transfers
(such as welfare payments or social security benefits) to individuals or groups in need.
8. Public Goods and Externalities: Public goods are goods and services that are non-
excludable and non-rivalrous, meaning they are available to everyone and consumption
by one individual does not diminish availability to others. Governments often provide
public goods like national defense, law enforcement, and infrastructure. Externalities are
the unintended side effects of economic activities that affect third parties, and public
finance may involve addressing or mitigating negative externalities through regulation or
taxation.
9. Intergovernmental Relations: In federal systems, there are interactions and financial
transfers between different levels of government (federal, state, local).
Intergovernmental relations involve issues such as revenue sharing, fiscal federalism,
and coordination of policies and expenditures.
10. Public Financial Management: Public financial management encompasses the
processes and systems governments use to plan, budget, account for, and manage public
funds effectively and transparently. It includes financial reporting, auditing,
procurement, and risk management practices.

Understanding these aspects of public finance is crucial for policymakers, economists, and
citizens to analyze government fiscal policies, evaluate their effectiveness, and ensure
accountability and sustainability in public finances.
II. BENEFITS OR PURPOSE OF TAX.
Taxes are how governments raise money to pay for things everyone needs, like schools, roads,
and healthcare. They also help distribute wealth more evenly and can encourage or discourage
certain behaviors, like saving or spending, to shape the economy.

III. BENEFITS OR PURPOSE OF TAX.

 Taxes: Revenue collected from individuals and businesses based on their income, property,
sales, and other activities.
 Fees and Charges: Payments for specific government services like licenses, permits, and
fines.
 Grants: Funds provided by other governments, organizations, or international institutions for
specific projects or purposes.
 Borrowing: Governments can borrow money by issuing bonds or taking out loans to finance
infrastructure projects or cover budget deficits.
 Investment Income: Revenue generated from government investments in stocks, bonds, and
other financial assets.

IV. REASONS FOR INCREASE IN COST EXPENDITURES

Cost expenditures can increase due to various reasons:

1. Inflation: When the general price level of goods and services rises, the cost of inputs
like materials, labor, and utilities increases, leading to higher expenditures.
2. Rising Demand: Increased demand for goods or services can drive up prices, resulting
in higher costs for governments to procure necessary supplies or services.
3. Wage Increases: If wages for government employees or contractors rise, it can lead to
higher labor costs and increased expenditures.
4. Policy Changes: Changes in government policies, regulations, or mandates may require
additional spending to implement new programs, comply with standards, or meet new
requirements.
5. Population Growth: With population growth, there's often increased demand for public
services like education, healthcare, and transportation, necessitating higher expenditures
to meet the needs of a larger population.
6. Infrastructure Maintenance: As infrastructure ages, maintenance and repair costs
typically increase, especially if neglect has led to more extensive repairs being needed.
7. Technological Advancements: Adopting new technologies can improve efficiency but
may require initial investments and ongoing costs for maintenance, upgrades, or training.
 8. External Factors: Events such as natural disasters, economic downturns, or geopolitical
tensions can lead to unexpected expenditures for emergency response, economic
stimulus, or security measures.
9. Contractual Obligations: Governments may be bound by contracts with suppliers or
service providers that include price escalations or increased costs over time.

Understanding the reasons behind increasing cost expenditures is crucial for governments to
manage their budgets effectively and ensure fiscal sustainability.

V. PURPOSE OF PUBLIC DEBT

1. Financing Government Operations: Public debt allows governments to fund their
operations and provide essential services when tax revenues are insufficient or during
times of economic downturn.
2. Infrastructure Investment: Governments can use borrowed funds to finance long-term
infrastructure projects such as roads, bridges, and public transportation systems, which
can stimulate economic growth and enhance public welfare.
3. Cyclical Stabilization: During economic recessions or downturns, governments may
increase borrowing to implement fiscal stimulus measures, such as increased spending or
tax cuts, to stimulate aggregate demand and stabilize the economy.
4. Investment in Human Capital: Borrowing can finance investments in education,
healthcare, and other social programs that contribute to human capital development and
long-term economic growth.
5. Inter-generational Equity: Public debt allows the current generation to share the
burden of financing public services and investments with future generations who will
also benefit from these services and investments.
6. Liquidity Management: Government bonds provide a safe and liquid investment option
for individuals, financial institutions, and central banks, helping to manage liquidity in
financial markets and stabilize interest rates.
7. Monetary Policy Implementation: Government debt instruments are used by central
banks in monetary policy operations, such as open market operations, to influence
money supply, interest rates, and overall economic conditions.
While public debt can be a useful tool for financing government activities and promoting
economic stability, it needs to be managed prudently to avoid excessive debt burdens that could
lead to fiscal crises or economic instability.
VI. PURPOSE OF PUBLIC DEBT
Merits:

1. Equity: Direct taxes ensure wealthier individuals pay more, promoting fairness.
2. Progressiveness: Tax rates can increase with income, reducing inequality.
3. Revenue Stability: They offer a steady income for the government.
4. Social Welfare: Direct taxes can support vulnerable groups through exemptions and
incentives.

Demerits:

1. Disincentive: High rates may discourage work and investment.

2. Evasion: Direct taxes are prone to evasion and avoidance.
3. Complexity: Tax laws can be intricate, leading to compliance issues.
4. Double Taxation: Some situations lead to the same income being taxed twice.

Direct taxes are vital for funding and fairness but require careful management to avoid
drawbacks.