Public finance plays important role mainly in the following :-
1. Economic
Growth :- Fiscal
policy plays an important role for the development of the economy by ensuring
money supply in required sectors. Thus, the basic objective of public finance
in a less developing economy is to promote and accelerate economic growth
through capital formation. With the help of the indispensable tool of public
revenue under the public finance, public expenditure is incurred for
maximisation of national product, output and infrastructure development.
2. Optimum
Use Of Finance :-
The policy of public finance ensures that public capital and revenue is
utilised ina n optimum manner. Thus, it avoids wastage of scares capital resources.
The policies should be designed to encourage the flow of investment into
socially desirable channels which are in conformity with the principles of
social marginal productivity.
3. Reduction
In Inequalities Of Income And Wealth :- Tools of public expenditure advocate the policy of equitable
distribution of income and wealth. For the same the rich are taxed more and the
surplus is distributed among the poor.
4. Generation
Of Employment :- This
is an important principles of public finance. It helps in generating adequte
employment and increases the standard of living. In developing countries the
Goverment achieve this by encouraging private enterprise, village and small
scale industries in the rural areas, increasing public expenditure on economic
and social overheads, and undertaking family planning programmes to control the
growing population.
5. Economic Stability :- The policy of public finance promotes economic stability in the economic by ensuring the correct supply of money in the economy and avoiding inflationary and deflationary tendencies. Increasing taxes on luxuries and decrease in public expenditure can redue money supply sufficeint to combat inflationary tendencies. Similarily, reduction in taxes and increase in money supply can meet the deflationary challenges.
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