Public Finance

Abstract

Public finance is concerned with government spending and revenue, the difference between them (the PSBR) and their magnitude relative to GDP. We concentrate on the economic characteristics of different taxes especially as regards the government’s objectives. Since welfare cannot be measured objectively, pronouncements on the distribution cannot be scientific. But government financial operations do redistribute wealth and the economist can draw attention to the economic implications. The government is concerned with the distribution of income for reasons of fairness, social harmony and the effect on the macro variables (e.g. saving). Overall inequality in the distribution of income can be depicted by a Lorenz curve.