Do you know what happens to the money that is excised in your salary? Or the additional amount that you have to pay for things like food, clothes, monthly bills, and mortgage? All of these are also known as atax. The money is used by the government to fund several programs to run the country, which includes preventing market failure, managing the allocation of resources, distribution of income, and stabilization of the economy. Aside from tax, the government also gets financial aid by borrowing from banks and insurance companies, receiving grants and aid, and earning dividends from the branches of the government.
In public finance, it explains the need for the intervention of the government in the economy. The main reason is to prevent market failure by allocating resources, distribution of income, and stabilization of the economy. The allocation of resource is done by the government to provide social goods or the division of the total resources between the private and social goods. For the distribution function, the government ensures that there is a “fair” or “just” distribution of income and wealth in the society. Lastly, the stabilization of the economy is done by achieving high employment rate, reasonable pricing level of goods and services, security for foreign investors, and high rate of economic growth. One way to achieve stabilization is through the help of fiscal policy for public policy guidance. If there is no fiscal policy, the result can be significant fluctuation in the economy and high unemployment rate and/or inflation.
Everyone surely knows about the taxes that they pay. The taxation is the field of study that explains how the government imposes and collects taxes, plus the income and wealth of individuals and companies. The tax policy, law, and administration are also part of the subject under the entire tax system. Some examples where taxes are collected from people: charges from ports, airport services, fines for breaking laws, and revenues from permits, licenses, and fees people pay in government branches. All of these are also sources of public finance.