Public Finance Module 1

Questions and Answers

What is one primary reason for the need for efficient government expenditure?

To fund military aggressions abroad

To ensure development for the country and its people (correct)

To reduce public service allocations

To increase power distance between the rich and the poor

Which measure does NOT assist in reducing inequality via public finance?

Subsidies to low-income groups

Tax exemptions for high-income individuals (correct)

Higher taxes on luxury goods

Progressive taxation

How does the stabilization function of public finance primarily address economic instability?

Through deficit budgeting during recessions (correct)

By increasing luxury taxes

By eliminating public services

Withholding funds from low-income groups

What is a key objective of public finance concerning income distribution?

To ensure equitable access to education Signup and view all the answers

What fiscal policy might a government adopt during an economic boom?

Surplus budgeting Signup and view all the answers

Which function of public finance helps to maintain steady growth?

Growth function Signup and view all the answers

What was a primary focus of public finance before the Great Depression?

Financing weapons and military efforts Signup and view all the answers

Which statement best describes a consequence of progressive taxation?

It finances public services for low-income groups Signup and view all the answers

What is the tax rate applied to individual resident foreigners on their gross compensation income?

1-35% Signup and view all the answers

Which taxation theory suggests that taxes should be levied based on the benefits individuals receive from the state?

Benefit Theory Signup and view all the answers

What is the final tax rate applicable to prizes and winnings above $10,000?

20% Signup and view all the answers

Which type of tax is imposed based on a person's yearly profits from various sources, including property and profession?

Income Tax Signup and view all the answers

Capital gains tax on the sale of real estate is typically set at what percentage?

5% Signup and view all the answers

What is considered a tax base for calculating tax liabilities?

Total assets or income Signup and view all the answers

According to the Cost of Service Theory, taxes should be determined by what principle?

Actual cost of services rendered Signup and view all the answers

What is the percentage tax levied on interest from bank deposits and substitute arrangements?

20% Signup and view all the answers

Which of the following represents income that comes from fines imposed on lawbreakers?

Compulsory Revenue Signup and view all the answers

What type of revenue includes payments made to the government for services rendered?

Fees Signup and view all the answers

Which category does income from donations to the government fall into according to Seligman's classification?

Gratuitous Revenue Signup and view all the answers

Which of the following is classified as a source of administrative revenue?

Escheat Signup and view all the answers

What is the essence of deficit financing in the context of public revenue?

It involves borrowing to cover budget deficits. Signup and view all the answers

Which type of revenue arises from the contractual relationships between public authorities and individuals?

Contractual Revenue Signup and view all the answers

Income derived from public property is classified as which of the following?

Administrative Revenue Signup and view all the answers

Which of the following is NOT categorized as a source of compulsory revenue?

Grants Signup and view all the answers

What is the primary focus of Public Finance?

Income and expenditure of the State Signup and view all the answers

Which of the following best describes the nature of Public Finance?

It combines both scientific principles and practical applications. Signup and view all the answers

What are public goods characterized by?

Non-exclusivity and collective usage Signup and view all the answers

Which of the following is NOT a part of the scope of Public Finance?

International Trade Analysis Signup and view all the answers

Which activity includes the study of government borrowing?

Public Debt Signup and view all the answers

What is the allocation function in Public Finance concerned with?

Distribution of public goods and services Signup and view all the answers

Which of the following best describes Financial Administration in the context of Public Finance?

Managing the financial activities of public authorities Signup and view all the answers

What does the study of Public Expenditures focus on?

Principles guiding government spending Signup and view all the answers

What is the more specific definition of Public Revenue?

Income of the government from all sources. Signup and view all the answers

What type of taxes are Custom Duties categorized under?

Indirect Taxes Signup and view all the answers

Which of the following sources does NOT fall under Non-tax Revenue?

Corporate Tax revenue Signup and view all the answers

In what manner is Expenditure Tax structured compared to Income Tax?

It is based on the rate of spending by individuals. Signup and view all the answers

Which statement accurately describes Tax Revenue?

It consists of funds raised through various taxes. Signup and view all the answers

What characterizes the classification of Public Revenue?

It includes income derived from public administration and commercial enterprises. Signup and view all the answers

Which of the following best describes Non-tax Revenue?

Income received from administration and commercial activities. Signup and view all the answers

Study Notes

Module 1: Public Finance Overview

Public Finance studies government income and expenditure, assessing the role of government in the economy.
It is both a science (principles, problems, policies) and an art (effective application of principles for societal benefits).
The scope encompasses public revenues, expenditures, debt, and financial administration.

Meaning and Nature

Public Finance involves collecting taxes efficiently and allocating funds effectively to fulfill government functions.
Central activities include public revenues, public expenditures, public debt, and financial management practices such as budgeting and audits.

Functions of Public Finance

Allocation Function: Focuses on public goods allocation (e.g., roads, healthcare) that requires efficient government spending.
Distributive Function: Aims to reduce wealth disparity through progressive taxes and funding public services like education and healthcare.
Stabilization Function: Seeks to manage economic instability through policies such as deficit budgeting during downturns and surplus budgeting during booms.
Growth Function: Promotes steady economic growth by implementing fiscal and monetary policies to enhance employment and price stability.

Objectives of Public Finance

Generate funds efficiently to support government development activities.
Ensure equitable income distribution and regulate economic activities.
Administer public resources effectively for economic development and poverty alleviation.

Importance of Public Finance

Historically focused on war efforts, the significance surged in the 20th century post-Great Depression, emphasizing citizens' social welfare.

Module 2: Public Revenue

Public Revenue is the income of the government from various sources, classified into tax and non-tax revenues.

Sources and Classification of Public Revenue

Tax Revenue: Derived from compulsory payments and includes direct taxes (like income tax) and indirect taxes (like sales tax).
Non-Tax Revenue: Income from government activities (e.g., commercial enterprises, administrative fees, gifts, and grants).

Taxation as a Source of Public Revenue

Managed by the Bureau of Internal Revenue; taxation rates in the Philippines range from 1-35% depending on income type.
Various forms of taxable income include royalties (20% tax), bank interest (20%), and capital gains tax (5% on real estate sales).

Theories of Taxation

Benefit Theory: Taxes should correlate with the benefits individuals receive from government services.
Cost of Service Theory: Aims for equity in taxation based on the actual cost of services rendered.
Ability to Pay Theory: Tax obligations should reflect individuals' financial capacity.

Classification of Taxes

Taxes can be classified based on their base, including property taxes (based on property value) and income taxes (on profits and salaries).

Key Tax Concepts

A tax base represents the total amount of income or assets subject to taxation, used for determining tax liabilities and rates.

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Description

Explore the fundamentals of Public Finance in this quiz. Learn about its meaning, nature, scope, functions, objectives, and importance in the economy. This quiz will help reinforce your understanding of how government income and expenditure operate.