Question

Distinguish between public expenditure and private expenditure

Answer 1

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╚» It includes privately funded occupational health care; prevention and public health services provided by charities, other non-Governmental organisations, voluntary organisations.

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Answer 2

1. Scope of Study:

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Public finance studies the complex problems that center around the revenue – expenditure process of government. Private finance, on the other hand, is confined to the study of those aspects of the economy that arise in the course of operation of private households in the sphere of financial transactions and activities. Hence in terms of scope of study private finance has a limited sphere of operation.

2. Income – Expenditure Adjustments:

There is a difference in approach between individuals and public au­thorities as regards the adjustment of income and expenditure.

In the case of individuals their expenditure is determined by the in­come at their disposal. Whereas a public authority, first decides the volume of expenditure, which it has to incur and then tries to find out the required resources.

Dalton points out “while an individual adjusts income to expenditure, a public authority adjusts expenditure to in­come”. Thus the individual cuts his coat according to his cloth, the state first decides the size of the coat and then sets about gathering the necessary cloths.

In other words an individual normally tries to live within his income and adjust his expenses according to the size of his income. On the other hand public authorities first estimate the various items f expenditure and then device methods of raising the necessary resources.

The difference in adjustment of income and expenditure between private business and public authorities arises, because the individual knows the size of his income, while the government does not know it.



3. Nature of Resources:

There is a difference between private and public authorities as re­gards the nature of resources. While the individual has only limited resources at his disposal, the public authorities can even draw upon the entire wealth of the community, by raising force, if necessary. Tax payment is a personal responsibility of the tax payer.

Nobody can refuse to pay taxes if it is imposed on him. Besides tax rev­enue, the public authorities can borrow funds from the general public and if needed, from outside the country.

The government can even resort to deficit financing, as and when financial situation worsens. As compared to this, individuals and business houses have only limited source of resources.

4. Coercive Authority of the Government:

An individual cannot raise coercive methods to raise his income. But the government can use force to collect the necessary revenue. Since the public authority possesses coercive power, it can raise rate of taxes, add new taxes to the existing system, and force tax payers to pay taxes promptly. Moreover during financial crisis, the government can intro­duce, compulsory deposit of funds, using coercive authority of the state.

5. Budgeting:

The individual attempts to balance his budget, i.e., his expenditure and income, within a short period of time, say a week or a month. Whereas public authorities may normally take a year as the period, within which their budget will have to balance.

Besides, while the individual attempts to secure a surplus from his income after meet­ing expenditure, the public authorities, usually may not have a sur­plus budget.

In the case of a public authority, it is a matter of fiscal adjustment based on economic circumstances that will decide whether the budget should be balanced, surplus or deficit. Depend­ing upon circumstances, each type of budget has its own merits and advantages.

6. Motive of Expenditure:

In the case of an individual the main consideration in expenditure is whether it will be profitable and beneficial. On the other hand, the motive of profit and surpluses do not influence spending by govern­ment departments.

Government has to finance improvement of a general nature and activities, for which financial return is uncertain or subject to long gestation period. Thus, as far as public authorities are concerned, except in commercial fields, the spending decisions are motivated by maximum social benefit.

Therefore the objective and motive of government in making expenditure are generally differ­ent from those of individuals and private business units.