Public finances

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State Finance ( English public finance , French finances publiques ) is in finance , the general term for all revenue and expenditure of the public sector ( public finance ) and especially those with a budget -related financial government revenues and government spending .


Strictly speaking, state finances are the finances of a state . The state finance sector deals with the financing of state tasks ( investments in infrastructure such as federal motorways or federal highways , national defense ; transfer payments such as social benefits ) through tax revenue and - if necessary - borrowing . These activities are reflected in a state budget that is drawn up by a finance ministry and usually approved by parliament around the world . The public finances are object of knowledge of finance , which therefore also with the taxation of business entities ( companies , households engaged).


Historians , economists and constitutional lawyers have been dealing with public finances for centuries. State finances were so important already in the Roman Empire that Gaius Iulius Caesar in 45 BC. The sole disposal of the entire state finances claimed for itself. Around 181 AD, Commodus tried to restore the state finances, which had been strained by the wars of his father Marc Aurel , by increasing the taxation of the senators . Emperor Diocletian introduced an edict of maximum prices in 301 to consolidate state finances and fight inflation .

England has since the establishment of the Treasury ( English Exchequer ) under Henry I accepted an exemplary role in the development of the art of financial management and financial accounting. This treasury, which was first recorded in England in 1118 and in Normandy in 1130 at the earliest, made the King of England a rich man. Charles I repeatedly issued fiscal decrees single-handedly to get the desolate state finances under control. This action by the Crown led to the Petition of Right of 1628 .

The state finances of Spain, which were heavily burdened after the War of the Spanish Succession in March 1714, should not be completely restored in the long term, despite many efforts. The appointment of Scottish economist John Law as general controller of finances also resulted in only temporary recoveries. On his death on September 1, 1715, Louis XIV left France with shattered state finances, triggered by its expensive foreign policy and the sumptuous court holding. On May 19, 1781, the French Finance Minister Jacques Necker published the catastrophic balance sheet of the state finances for the first time and was thereupon by King Louis XVI. dismiss. In May 1787 he put the national deficit at 125 million francs, which increased the hostile mood in France. On October 10, 1789, at the beginning of the French Revolution , the National Assembly declared the church property to be state property and sold the parceled land to rehabilitate the state finances.

With Karl Marx the question of public finances took a back seat; he treated it more as a marginal phenomenon compared to the central explanation of surplus value . In November 1867, he emphasized that public finances play a central role in the history of capitalism - not only in the process of "original accumulation " - but also in the accumulation process of developed capitalist economies .

When Egypt's public finances were about to collapse in 1875 , the country sold its 40% state stake in the Suez Canal to England for £ 3.25 million. British rule over Egypt originated in this crisis of Egyptian public finances. Between the beginning of the khedivat under Ismail Pasha from 1864 to 1875, the national debt rose from around 3.5 to 77 million pounds, which led to the suspension of interest payments for a short time and tied to national bankruptcy.

The Bavarian King Ludwig II was officially declared insane in March 1886 after he had ruined the state finances with his pompous nostalgic locks.

Adolph Wagner's “General Law on the Extension of State Activities” of 1893 states that the volume of state activities - and their impact on state finances - grows in modern states both in absolute terms and in relation to the national product and that this expansion is accompanied by a structural change in state finances. The historical trends in public finances in Western countries since the end of the 19th century largely confirmed Wagner's law, provided that the significant increase in government quotas during the two world wars is seen as an exception and that social security is included in public budgets . His investigations were supported by the increasing bureaucratisation of the public administration , which is noticeable in the budget through increasing government spending and which has been the subject of Parkinson's laws since 1957 .

Crises in public finances have often contributed to national bankruptcy , for example three times in Spain (1557, 1575 and 1596) under Philip II , in France the national bankruptcy of 1788 was one of the main reasons for the following French Revolution, followed by the national bankruptcy of Austria (1811) and Denmark (1813). Due to ailing state finances, Greece experienced its first national bankruptcy in 1893 and remained in the headlines until the financial crisis from April 2010.

The fundamentals of public finance are still a fascinating topic. The legal order of public finances through European law has given public finances in the EU member states a uniform legal framework. The financial crisis that began in 2007 put a particularly heavy strain on the public finances of the PIIGS states and initiated consolidation or restructuring there with the help of the World Bank and European institutions .


The sector "State" includes the governments ( federal , states , municipalities and municipal associations ) and social security ( health , accident , unemployment , nursing care and pension insurance ). Accordingly, public finances in the narrower sense are reflected in the federal budget and in the social security agencies. These and the budgets of the federal states, municipalities and municipal associations are shown in the public finance aggregate . There is an interdependence between these budgets through financial equalization , which is also part of public finances in the broader sense. State finances also include state assets , which, like state debts, are not recorded in the state budget.

Today's meaning

Public finances are represented by the state budget, which is the result of a government's economic and financial policy . In terms of the national budget, the states are usually the largest economic agents in their country. This is why state finances are of great importance for the respective national economy , because the state enters into functional and structural interrelationships with the market dynamics of its national economy through its budget . The higher the economic key figure of the government quota , the more influence the government finances exert on an economy and vice versa.

With taxation, the income , assets and transactions of the economic subjects are burdened, the state makes investments through government spending and in turn procures these economic subjects as buyers orders , thereby promoting economic growth. If public finances are not sustainable , however, the economy will develop in the direction of a debt trap . This consists in the fact that the state interest expense can no longer be financed by tax revenues in the medium term, so that new borrowing is necessary for this, which means that the national debt ratio continues to rise.

In this context, the influence of interest rates on public finances is important. A government budget in deficit has a negative financial balance , which takes into account interest expenditure on government debt such as government bonds . If the interest rate rises, the negative financial balance will continue to rise - assuming the other conditions remain the same - and require additional new borrowing by the state, which can contribute to a further rise in interest rates on the capital markets . This self-reinforcing process can lead states with a high national debt ratio to a financial crisis through an unfavorable interest burden ratio , as was the case with the euro crisis and especially the Greek national debt crisis . This can result in a state policy of austerity , which can have a contractionary effect on an economy with restrictive measures (tax increases and / or spending cuts).

Public finances are heavily dependent on the general economic situation. Extraordinary burdens on the state finances are wars and state liabilities for companies (especially credit institutions ) and other states in the context of financial crises . While wars lead to direct expenditure, the liabilities assumed initially represent contingent liabilities that are only recognizable as shadow debts. Structural burdens result from undesirable developments such as expansive spending policies and restrictive revenue policies and lead to structural budget deficits .

For sensible planning of the future development of public finances, there is the instrument of financial planning , which has been established in Germany since June 1967 in medium-term financial planning . According to this, the budget of the Federation and the Länder is based on a five-year financial plan. As in any planning, it includes investment priorities, which are offset by estimates of expected tax revenues.

In many credit institutions there are departments that grant loans to states and their local authorities as part of the lending business and - also in Germany - carry the name Public Finance .

Individual evidence

  1. ^ Gérard Walter, Caesar , 1955, p. 551
  2. Brigitte Esser, Daten der Weltgeschichte , 2004, p. 356
  3. Reinhard Schneider, From monastery budget to city and state budget , 1994, p. 7
  4. Jörg Schwarz, Das Europäische Mittelalter , Volume 2, 2006, p. 108
  5. Brigitte Esser, Daten der Weltgeschichte , 2004, p. 537
  6. Brigitte Esser, Daten der Weltgeschichte , 2004, p. 563
  7. Willi Albers (Ed.), Handwortbuch der Wirtschaftswwissenschaft , Volume 7, 1977, p. 319
  8. Peter Wende, Das British Empire: Geschichte einer Weltreichs , 2008, p. 205
  9. ^ Adolph Wagner, Foundation of Political Economy , Volume 2, 1893, p. 892
  10. Manfred G. Schmidt, Governing in the Federal Republic of Germany , 1992, p. 97
  11. Christian Jahndorf, Fundamentals of State Financing through Loans and Alternative Forms of Financing in Constitutional Finance and European Law , 2003, p
  12. Klaus-Martin Groth, The Crisis of State Finances: Systematic Reflections on the Crisis of the Tax State , 1978, p. 56
  13. Mario Jung, The Clinton-Greenspan Policy Mix , 2010, p. 103