IMPORTANCE OF PUBLIC FINANCE

There is great socio-economic significance of public finance, both in developed and developing countries. In developed country countries, price-stability and full employment are the main economic goals of public finance. In developing countries, rapid economic development through capital formulation and creation of infrastructure art the important goals of public finance operations. Socially equitable distributions of income, reduction of inequalities in income are some important functions of public finance operations. The importance of public finance can be clarified from the following functions.

1. TO INCREASE THE RATE OF SAVING AND INVESTMENT
Most of the people spend their income on consumption. Saving is very low so the investment is also low. The government can encourage the saving and investment.

2. TO SECURE EQUAL DISTRIBUTION OF INCOME AND WEALTH
Unequal distribution of income and wealth is the basic problem of the under developed countries. The rich are getting richer and richer while the poor are becoming poorer and poorer. So for the equal distribution of income and wealth there is need of government.

3. OPTIMUM ALLOCATION OF RESOURCES
Fiscal measures like taxation and public expenditure programmers can greatly affect the allocation of resources in various occupation and sectors.

4. CAPITAL FORMULATION AND GROWTH
Fiscal policy will be designed in a manner to perform two functions as of expanding investment in public and private enterprises and by diverting resources from socially less desirable to more desirable investment channels.

5. PROMOTING ECONOMIC DEVELOPMENT
The state can play a prominent role in promoting economic development especially through control and regulation of economic activities. It is fiscal policy which can promote economic development.

6. IMPLEMENTATION OF PLANNING
Under democratic planning fiscal policy plays crucial role as financial plan is as much important as physical plan and the implementation of the financial will obviously depend upon the uses of fiscal measures.

7. INFRASTRUCTURE BUILDING
Public finance helps to build up well-development physical and institutional infrastructure.

8. TO CONTROL INFLATION
The imbalance between demand for and supply of real resources may lead to inflations to under-development countries inflation ruins the entire economic structure of the national and the process of economic development in these countries comes to stand still. So to check inflation, budgetary policies can be used by the government.