Revision: Fiscal Economics Economics HSC Arts Class 12 Tamil Nadu Board of Secondary Education

Definition: Public Finance

According to Hugh Dalton: “Public finance is one of those subjects which are on the borderline between economics and politics. It is concerned with the income and expenditure of public authorities and with the adjustment of one with the other.” Since we study the activities of the governments in political science too, public finance also constitutes a part of the study of political science.
According to Prof. Findlay Shirras: “Public finance is the study of the principles underlying the spending and raising of funds by public authorities.”

Definition: Budget

"It is a document containing a preliminary approved plan of public revenue and expenditure." – Prof. Rene Stourn
"The budget has come to mean the financial arrangements of a given period, with the usual implication that they have been submitted to the legislature for approval." – Prof. Bastable
"A Govt. budget is a financial plan concluding outlay and receipt of the Govt." – Richard Good

Key Points: Difference Between Public Finance and Private Finance

Basis	Public Finance	Private Finance
Objective	Social welfare	Personal gain
Expenditure	Spends first, then raises funds	Earns first, then spends
Credit	High credit	Limited credit
Currency	Can print money	Cannot print money
Elasticity	Flexible	Less flexible
Economic Effect	Large impact on the economy	Small impact on the economy

Key Points: Public Expenditure

Public expenditure is government spending by central, state and local bodies for public welfare and development.
It includes spending on defence, administration, health, education, roads and social welfare schemes.
Revenue expenditure covers day‑to‑day running costs like salaries, pensions and routine services.
Capital expenditure creates assets and development, e.g. infrastructure projects and loans.
Developmental expenditure is productive and raises employment, output and welfare (health, education, industry, R&D).
Non‑developmental expenditure is mainly compulsory and less productive, such as defence and general administration.
Public expenditure is rising due to more government welfare functions, population growth, urbanisation and higher defence and administration costs.

Key Points: Public Debt

Public debt is government borrowing when its spending is more than its income.

Basis	Internal Debt	External Debt
Source of borrowing	Borrowed within the country (citizens, banks, RBI, institutions)	Borrowed from foreign governments, banks, IMF, World Bank, etc.
Currency	Borrowed in domestic currency	Borrowed in foreign currency
Management	Easier to manage	Harder to manage