Public finance, according to the traditional definition of the subject, is
that branch of Economics which deals with, the income and expenditure of a
government. In the words of Adam Smith:
"The investment into the nature and principles of state expenditure and state revenue is called
The earlier economists were perfectly
justified in giving this definition of the science of public finance because the functions of the public authorities in
those days were simply to raise revenue by imposing taxes for covering the cost
of administration and defense.
The scope of the science of public finance
now-a-days has widened too much.
It is due to the fact that modern states have to perform multifarious functions
to promote the welfare of its citizens. In addition to maintaining law and order
within the country and provision of security from external aggression, it has to
perform many economic and commercial functions.
Due to the increased activities
of the state, there has taken place a vast increase in the expenditure of the
public authorities. The sources of revenue have also increased. Taxes are levied
not for raising the revenue alone but are used as an important instrument of
Public finance now includes the study of financial
administration and control as well. We, therefore, agree with Professor Bastable
when he defines public finance as that:
"Branch of economics which deals with
income and expenditure of public authorities or the state and their mutual
relation as also with the financial administration and control the term public
authorities includes ail bodies which help in carrying on the administration of
The study of public finance is split
up into four parts; (1) Public Expenditure (2) Public Revenue, (3) Public Debt
and (4) Budgeting etc.