Hello friends, in today’s article we are going to know about the difference between Public Finance and Private Finance. So let’s discuss in details.
Difference between Public Finance and Private Finance
By the term ‘private finance’, we mean the study of income, debt and expenditure of an individual of a private company or business nature. On the other hand, public finance deals with income expenditure and borrowings of the govt.
The dissimilarities between the private and public finance are quite sharp in the matter of motives, methods of finance and extent of resources. Following are some of the main differences of the public finance and private finance –
• Nature of Income – In case of public finance the nature of income of the govt is compulsory. The government can compel the people to pay the taxes, but the individual has no such right in case of private finance.
• Scope of Income – The scope of govt income is very wide. It can get loans from other countries or it can expand money supply. But all such facilities are not available to individuals.
• Nature of Resources – There is a difference between public and private authorities as regards as resources. The resources at the disposal of the individual are limited but those of the public authorities are enormous. They can draw upon entire wealth of the community, by using force if necessary.
• Compulsory Character – The public authorities can’t avoid or postponed certain expenditure, on the other hand, in the case of individual, it is quite possible to do so.
The expenditure of defense is of compulsory nature. Besides, state can force people to consume a particular variety of cloth and other commodities on the fixed price.
• Principal Equi-marginal Utility – For an individual it is easy to plan his expenditure on the basis of equi-marginal utility, because he can spend his money to the point where marginal utility of the commodities become equal.
But government is not free in this regard, although its aim is to secure maximum social welfare. For example, the public authority is bound to spend money on certain items, e.g. defense, which may not be social welfare.
• Coercive Authority – Private individuals can never use force to get their revenue, by using money coercive methods which public authority can realise its revenue. However sometimes, it is agreed that coercive power, can exist in private individuals, as for example if a business is monopolist the buyers move to buy the same commodity and at a same price, it is offered.
However the coercive power of the public authorities is much more than that of private individual and business man.
• Budgeting Differences – To an individual, surplus budgeting is good as it implies saving. The public authority on the other hand, may or may not go in far surplus budgeting.
They may bring about a surplus either through a high level of taxation or through a low level of expenditure both of which may not be liked by general public.
• Long term Consideration – Investment of private companies or individual is found liberal in those of fields of business where returns are quick & immediate.
But, the govt. is never influenced by such consideration. The govt. is the guardian and custodian not only of the present generation but of the future generation also.
• Secrecy and Adult – Private businessman generally believes in the philosophy of secrecy and doesn’t like to show his financial affairs to others on the other hand, govt, gives the greatest publicity to budget proposals. In fact, public is excited to know, criticise the policy matter of the govt.
Thus we see that there are some important fundamental differences between the public finance and private finance.
So friends, this was difference between public finance and private finance. Hope you get the full details about it and hope you like this article.
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