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The Finance (eng. Public finance) deals with the role of government in the economy . In particular, she examines public finances and the effects of government on the efficient allocation of available resources, the distribution of income among citizens and the stability of the economy.

It is a branch of economics .


The starting point for finance is the question of the right role for government . In theory , markets distribute goods and services efficiently. This means that when the market is in equilibrium, there is no waste and the welfare of consumers and producers is maximized. If markets were always efficient in distributing resources and if the distribution were socially acceptable , the role of government would be very limited. In many cases, however, one of the conditions mentioned is not met. Either markets do not deliver the desired efficient results, or the resulting distribution does not find social acceptance. Hence, there are 2 main goals for government intervention: efficiency and equity . Often one has to weigh up between these two goals.

Market failure occurs when markets do not efficiently distribute goods and services. Externalities , information asymmetries or network effects are examples of reasons for market failure . The existence of market failure justifies government intervention with the aim of establishing an efficient allocation of resources . However, government intervention can also lead to inefficiencies. This is called state failure .

It can also happen that the results of a market distribution do not find social acceptance. In this case, the government can take redistributive measures. However, these usually lead to efficiency losses . Under general conditions, a distinction can be made between government activities via the efficient level of government action and the establishment of tax systems (Diamond-Mirrlees separation). Under these assumptions should state social policies to benefit maximize and minimize the costs ( cost-benefit analysis ). The income for these programs should be generated through an efficient tax system. Efficient means that this tax system results in the lowest possible welfare losses or costs . In practice, government budgeting is much more complex and often leads to inefficiencies or government failure.

Governments can also pay for government spending through debt. However, debt only shifts the tax burden into the future. Debt is not a substitute for taxes. The budget balance is the difference between government expenditure and revenue . Debt allows the tax burden to be smoothed over time and is therefore an important tool in fiscal policy .

Topics of finance

In a narrower sense, it illuminates the income (e.g. taxes , levies ) and expenditure ( e.g. subsidies , public institutions) of a state as well as the relationship between the various levels of government (federal government, states, municipalities) ( financial equalization ). It describes the financial management of the public sector and is based on the data from financial statistics and the national accounts.

The traditional term finance does not adequately describe the subject of investigation. In addition to the classic questions (e.g. the optimal design of the tax system ), modern finance also deals with the use of resources in an economy ( allocation problem ), the influence on income and employment (stabilization problem) and the distribution of income and wealth ( distribution problem ). In addition, institutional framework conditions (e.g. requirements, prohibitions, legal regulations) are included in the economic analysis. The question of which alternative courses of action are to be preferred to the public sector from a macroeconomic perspective tries to determine the welfare economics . In the Anglo-Saxon-speaking area, the term "public economics" (instead of " public finance ") is increasingly used for this topic in order to indicate the breadth of the subject . However, the corresponding German term "Staatswirtschaftslehre" has not caught on.

Other areas that are covered in public finance are:

Public finance overlaps to a large extent with economic policy , even if in comparison it used to be more theory-based. This separation was a German peculiarity and not very common internationally. Today theory and econometrics are just as common in public finance as in other economics.

History of finance

In the 16th century in the age of cameralism , the focus was primarily on the fiscal purpose of taxation. In the 17th and 18th centuries, finance received a distribution policy orientation in the so-called excise dispute . This was mediated by Johann Heinrich Gottlob von Justi : a general consumption tax would burden poorer sections of the population more than members of higher income groups and should therefore be rejected.

With the conflict between liberalism and socialism in the 19th century, aspects of distribution policy came to the fore again: Adolph Wagner demanded that taxation also serve socio-political goals.

At the beginning of the 20th century, public budgets had grown to such an extent that their influences on economic activities could no longer be neglected. The global economic crisis of 1929 and the thesis put forward by John Maynard Keynes that once underemployment did not necessarily lead to full employment again, gave the impetus to include an economic goal in financial policy.


Individual evidence

  1. a b c d e f g h i j k Gruber, Jonathan ,: Public finance and public policy . Sixth ed. New York, ISBN 978-1-319-10525-9 .
  2. a b c d e Roger S. Hewett: Public Finance, Public Economics, and Public Choice: A Survey of Undergraduate Textbooks . In: The Journal of Economic Education . tape 18 , no. 4 , 1987, pp. 426 , doi : 10.2307 / 1182123 , JSTOR : 1182123 .
  3. ^ Wallace E. Oates: The Theory of Public Finance in a Federal System . In: The Canadian Journal of Economics . tape 1 , no. 1 , February 1968, p. 37 , doi : 10.2307 / 133460 , JSTOR : 133460 .
  4. ^ A b c d e Tresch, Richard W.,: Public sector economics . Basingstoke, Hampshire [England], ISBN 978-0-230-52223-7 , pp. 143 ff .