Public finance is the study of the role of our United States government in relation to the economy. This area of economics takes a close look at the revenue generated by the government and how this revenue is spent by our politicians in power. When it comes to public finance, the concept is usually broken down into three different parts. These parts include:

  • Macroeconomic Stabilization
  • Distribution of Income
  • Efficient Allocation of Resources

Let’s take a closer look at the specifics of finance in the public sector.

Related Resource: 50 Best Online Master of Finance Degree Programs 2018

The Need For Government Involvement

Our government is designed to provide an opportunity for analyzing public finances as a whole. Theoretically speaking, private markets provide goods and services in hopes of an efficient and successful outcome. If this private markets system was perfect, there really wouldn’t be a need for government involvement. However, when a market isn’t adequately performing, market failure can occur. Public finance comes in to provide the analysis necessary to help avoid these market failure conditions.

Income Distribution

When maintaining the financial health of a society, it is important to take a close look at income distribution in relation to social equity. Our government is designed to have the ability to change things like our tax system when deemed necessary. This process can achieve things like restructuring tax brackets and rates, which is a very important tool to help distribute income properly based off of high income and low income households and businesses.  Retirement, pensions, and social security is another area that requires analysis. Forbes states that our country is always debating about where money will come from for retirees, who is responsible for these resources, and how will they be generated without hurting the overall stability of our economy.

Resource Management

Managing our finances from a public standpoint can be done in a number of different ways. Collecting resources and allocating them where needed leads to optimal financial management. Generating these resources is extremely important and there are a number of public finance sectors that focus on this ideal management such as:

  • Public Expenditure
  • Public Revenue
  • Public Debt
  • Financial Administration

Each of these sectors have their own role and set of beliefs that are designed to protect a variety of people and groups in our society.

Whether you are studying this topic in a college classroom or evaluating a career path, there is a lot to learn about the United States economy. Public finance seeks to understand the many roles that government plays in the economy, whether it be local, state, or national.