Public Finance: Role, Scope, and Functions - Chapter 2

CHAPTER 2: THE ROLE SCOPE THE ROLE & SCOPE OF PUBLIC FINANCE ABITONG THE ROLE OF PUBLIC FINANCE What is the importance of government? What is the importance of government?  To establish laws  To maintain order and provide security  To protect...

CHAPTER 2: THE ROLE SCOPE THE ROLE & SCOPE OF PUBLIC FINANCE ABITONG THE ROLE OF PUBLIC FINANCE What is the importance of government? What is the importance of government?  To establish laws  To maintain order and provide security  To protect citizens from external threats  To promote the general welfare by providing public services. What would it be like to live in a nation without government?  WHAT IS, AND WHY IS THERE A NEED TO STUDY PUBLIC FINANCE? - Public finance is the part of economics which deals with the revenue and expenditure patterns of the government and their various effects on the economy. In other words, Public finance is the study of the economic aspects that arise in the operations of the public budget. THE FREE MARKET ECONOMY  PRIVATE FINANCE - Private finance relates to private wants. - Private wants are those that can PUBLIC FINANCE be satisfied through the mechanism of the market - Public finance deals with public because their enjoyment can be wants. made subject to price payments. - Public wants on the other hand are those that cannot be satisfied through the working of the market because their enjoyment by any individual consumer is independent of his payment or contribution.  CLASSIFICATION OF PUBLIC WANTS a. SOCIAL WANTS- are wants whose satisfaction should be subject to the principle of consumer sovereignty, that is, resources should be allocated in response to the effective demand of consumers. b. MERIT - are those that are subject to the exclusion principle and are satisfied by the market within the limits of effective demand. 3 FUNCTIONS OF PUBLIC FINANCE 1. The function of the allocation section, the provision of goods and services to satisfy public wants, may be considered the historically accepted objective of budget policy. 2. The function of the distribution section relates to the determination and attainment of a proper state income distribution. 3. The function of the stabilization section is concerned with maintaining a high level of resource utilization, that is, full employment of all factors of production and a stable value of money. THE SCOPE OF PUBLIC FINANCE MAJOR RECIPIENTS OF NATIONAL BUDGET National Government Agencies (NGAs). These entities perform functions not normally undertaken by the private sector. Local Government Units (LGUs). They refer to provinces, cities, municipalities and barangays. Government-Owned and/or Controlled Corporations (GOCCs). These are stock or non-stock corporations, whether performing government or proprietary functions, which are directly chartered by special law or owned or controlled by the government directly or indirectly. NATIONAL GOVERNMENT AGENCIES 20 GOVERNMENT DEPARTMENT The Office of the President Office of the Press Secretary - formulates and implements an integrated program of information and developmental communication that will present the work of the Presidency. Other Offices like the Senate, Anti-money Laundering Council, House of Representatives, etc. MAJOR RECIPIENTS OF NATIONAL BUDGET Public Works And Highways Energy Health Finance Transportation Foreign Affairs Agriculture Labor And Employment Justice Land Reform Education National Economic Development Interior And Local Government Authority Tourism Science And Technology National Defense Trade And Industry Social Welfare And Development Environment and Natural Budget And Management Resources SECTOR A sector is an agency or cluster of agencies whose expenditures are directed towards a common purpose. Government expenditures are classified according to the following sectors: a) Economic services c) Defense services b) Social services d) General Public services ECONOMIC SERVICES Economic Services pertain to the enhancement of the country's industrial and agricultural production capacities. Department of Trade and Industry (DTI) Department of Environment and Natural Resources (DENR) Department of Agriculture (DA) Department of Agrarian Reform (DAR) Department of Public Works and Highways (DPWH) Department of Transportation and Communication (DOTC) SOCIAL SERVICES Social Services pertain to education and manpower development, health, housing, and social security and welfare services. Department of Education (DepEd) Department of Health (DOH) Department of Social Welfare and Development (DSWD) Department of Labor and Employment (DOLE) National Housing Authority (NHA), as well as the pension for veterans, will fall under this category. DEFENSE SERVICES Defense Services refer to the strengthening of domestic security and the maintenance of peace and order. The Department of National Defense­s Armed Forces of the Philippines (AFP) is under this sector. GENERAL PUBLIC SERVICES General Public Services refer to general administration, basic research and the dispensation of justice. Under this sector are the National Economic and Development Authority (NEDA) and the Department of Justice