Public finance is the study of the role of the government in the economy.

..It is the branch of economics which assesses the government revenue and government expenditure of the
public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones. [2]
The purview of public finance is considered[ by whom? ] to be threefold: governmental effects on (1) efficient allocation of resources, (2) distribution of income , and (3)
macroeconomic stabilization .
Overview
The proper role of government provides a starting point for the analysis of public finance. In theory, under certain circumstances, private markets will allocate goods and services among individuals efficiently (in the sense that no waste occurs and that individual tastes are matching with the economy's productive abilities). If private markets were able to provide efficient outcomes and if the distribution of income were socially acceptable, then there would be little or no scope for government. In many cases, however, conditions for private market efficiency are violated. For example, if many people can enjoy the same good at the same time (non-rival, non-excludable consumption), then private markets may supply too little of that good. National defense is one example of non-rival consumption, or of a
public good .
" Market failure " occurs when private markets do not allocate goods or services efficiently. The existence of market failure provides an efficiency-based rationale for collective or governmental provision of goods and services. [3] Externalities , public goods, informational advantages, strong economies of scale, and network effects can cause market failures. Public provision via a government or a voluntary association, however, is subject to other inefficiencies, termed " government failure ."
Under broad assumptions, government decisions about the efficient scope and level of activities can be efficiently separated from decisions about the design of taxation systems (Diamond-Mirlees separation). In this view,
public sector programs should be designed to maximize social benefits minus costs (cost-benefit analysis), and then revenues needed to pay for those expenditures should be raised through a taxation system that creates the fewest efficiency losses caused by distortion of economic activity as possible. In practice, government budgeting or public budgeting is substantially more complicated and often results in inefficient practices.
Government can pay for spending by borrowing (for example, with government bonds), although borrowing is a method of distributing tax burdens through time rather than a replacement for taxes. A deficit is the difference between government spending and revenues. The accumulation of deficits over time is the total public debt . Deficit finance allows governments to smooth tax burdens over time, and gives governments an important fiscal policy tool. Deficits can also narrow the options of successor governments.
Public finance is closely connected to issues of
income distribution and social equity. Governments can reallocate income through
transfer payments or by designing tax systems that treat high-income and low-income households differently.
The public choice approach to public finance seeks to explain how self-interested voters, politicians, and bureaucrats actually operate, rather than how they should operate.
Objectives of public finance
The main objectives of public finance are to regulate the important sectors of the country (industry, agriculture, foreign trade and transport) and to facilitate the economic activities of government and the private sector; to provide the basic services to its citizens such as defense, maintenance of law and order, and protection of life and property; to provide social services for the people, e.g. education, medical care and social security; to ensure economic stability and attain a reasonable rate of development; and to indicate priorities of investment.
Public finance management
Collection of sufficient resources from the economy in an appropriate manner along with allocating and use of these resources efficiently and effectively constitute good financial management. Resource generation, resource allocation and expenditure management (resource utilization) are the essential components of a public financial management system.
Public finance management (PFM) basically deals with all aspects of resource mobilization and expenditure management in government. Just as managing finances is a critical function of management in any organization, similarly public finance management is an essential part of the governance process. Public finance management includes resource mobilization, prioritization of programmes, the budgetary process, efficient management of resources and exercising controls. Rising aspirations of people are placing more demands on financial resources. At the same time, the emphasis of the citizenry is on value for money, thus making public finance management increasingly vital. The following subdivisions form the subject matter of public finance.
1. Public expenditure
2. Public revenue
3. Public debt
4. Financial administration
5. Federal finance
Government expenditures
Main article: Government spe