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Public finance involves how governments allocate resources and spend money, with a focus on the government’s role in society. This includes taxing citizens to provide basic services and borrowing money through government bonds. Public finance also seeks to hold governments accountable for their financial practices, which can vary greatly between countries and lead to public reactions.
Public finance is part of the economic sector and mainly concerns the activities involving the government and how it allocates resources and spends money. A narrower term for this type of financial study would be public finance, while the broader term is public economics. How resources are acquired and used and the macroeconomic stability of the economy are important to people who study public finances. This branch of economics focuses more on the proper role of a government in society. The theory is that government wouldn’t be needed if private enterprise allotted everything fairly to everyone.
That doesn’t happen, so the government is needed to ensure that people who have no money are able to get basic services like food and medical care. This is done by taxing everyone so that the money raised can be distributed through government programs for the needy. People who have very little end up paying very little in taxes, and people who have more pay more. Another way government manages public finances is through borrowing money, thus providing more money to spend. Government bonds are one of the ways the ruling body creates something of value to borrow for.
When people focus on their personal financial goals by buying government bonds, the money they pay to acquire them is, in essence, a loan to the government. The government then uses that money, along with tax breaks and other revenue streams, to fund specific projects and run programs designed to help people and businesses in need. Public finance also seeks to hold government accountable for how it collects money and how it chooses to spend it once it is collected. The way a government entity manages its money is generally very complicated, often resulting in some sectors of the public becoming angry over practices that appear to be highly inefficient.
Unlike corporate finance, which is relatively narrow in the way money is handled, government finance involves a redistribution of income that is handled very differently in some countries than in others. The United States, for example, has not implemented some of the larger social programs, such as public health care, as many European nations do. This causes both positive and negative reactions from the general public and can lead some people to feel insecure and wonder how their tax dollars are actually being spent.
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