PUBLIC FINANCE
By M.A.Durre- Kismayo University, Kismayo Somalia.
INTRODUCTION TO PUBLIC FINANCE
Public Finance deals with the way in which the State acquires and expends its means of subsistence. It stands in somewhat the same relation to the State that Political Economy stands to the individual. If Economics may be defined as the science which deals with the activity of the practical reason in acquiring and applying those things that are provided in comparatively limited quantities, for the satisfaction of the external and temporal wants of man, then, adapting our definition to somewhat the same terminology, Public Finance may be defined as the science which deals with the activity of the statesman in obtaining and applying the material means necessary for fulfilling the proper functions of the State.
Public Finance is properly called a science, because, (1) it deals with a definite and limited field of human knowledge; (2) it admits of an orderly arrangement of its facts and principles, and contains many laws of general progress belonging exclusively to its own field; (3) it admits of the application of scientific methods of investigation; (4) it foresees as well as explains a certain class of phenomena; (5) it is generally, if not universally, so regarded. It is however, a secondary or dependent science. It is closely related to two other sciences, upon which it properly depends. These are Political Economy and Political Science. While, on the one hand, it draws largely upon the conclusions of these two sciences for its hypotheses, yet on the other it contributes much to them. Most of the prominent German writers on the subject regard Public Finance as a corporate part of Political Economy. It is properly so regarded, because the activities of the State that belong to this field are of such a nature as to consume wealth, produce wealth, and to interfere with the distribution of wealth. From Political Science we shall have to borrow many conclusions as to the nature of the State, and as to the functions of government. A determination of what the proper functions of the State may be is no part of our subject, but belongs wholly to Political Science. In general it has been found best to assume that the functions now actually performed by the States are proper, provided they are not clearly contrary to some generally accepted principles of Political Science. We are thus relieved of the burden, assumed by many writers on the subject, of attacking or defending the actions of different governments in matters as to the propriety of which there is some question: for example, the propriety of the continuance or assumption of State ownership of railroads, or the State monopoly of tobacco. All such matters will be treated purely from the fiscal point of view
FUNCTIONS OF PUBLIC FINANCE
A. ALLOCATION FUNCTION
This is the aspect of public finance concerned with influencing the provision of goods and services in the economy.
The function of government is arguably necessary because certain goods known as public goods cannot be provided by private market. In addition, the allocation function can be justified on the basis of dealing with externalities whereby an individual's action creates costs or benefits for other individuals.
Apparently, the market fails in the provision of social goods because it does not lead to a desired result. In the real world, market failures are pervasive- the market is always failing in one way or another for the provision of those goods needed publicly by all.
The market economy, when certain conditions are met, serves to secure an efficient use of resources in providing for private goods. Consumers must bid for what they wish to buy and must thus reveal their preferences to producers. Producers, in trying to maximize their benefits will produce what consumers will want to buy and will do so at least cost. Therefore market situation will be dominated by fierce competition between private companies. But the provision of public goods is really different from the above stated situation.
