The role of Public finance in developed and developing countries
This is to stabilize growth rate. For this the government changes it expenditure and Taxation policy to provide/produce good effect and avoid bad effect on national income, production, employment and prices.
When the prices are falling during recession, private investment also Falls to compensate for the lack in investment and to raise effective demand, output, employment and income,
the government increases it expenditure on public Works and social security program through budget deficit, debt repayment and reduction in Taxation.
On other hand, when they are inflation tendencies the government reruces it's expenditure on public goods. It also reduce effective demand through budget surplus.
The government also control recession and during economic boom (inflation) by appropriate combinations of expenditure, borrowing and Taxation policies.
In Developing countries
Public finance helps the problem of capital formation in developing countries because the per capital income and savings are extremely low in such countries.
The few rich waste large portion of their savings in properties, jeweries, gold, speculation and in voracious consumption.
Fiscal policy divert them into productive channels through taxation, borrowing and expenditure. Fiscal policy promote economic development by insreasing the rate of investment,
encourage investment in socio economic infrastructure, increase employment opportunities and also reducing balance of payment disequilibrium.
The role of Public expenditure in economic Development lies in increasing the growth rate of the economy providing implement opportunities, raising income, standard of living, reducing inequalities of income and wealth, encouraging private initiative and enterprises.
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