What are the main sources of Public revenue?

This article covers the following:

1. Various Sources of public revenue or government revenue.

2. Roles or important of public finance.

3. Difference between Public goods and Private goods.

Sources of public revenue:

The classification of public revenue or government revenue can be broadly categories in two types, they are – Revenue receipts and Non revenue receipts.

(1) Revenue receipts: Revenue receipts are those receipts which do not create either a liability or lead to reduction in assets. Revenue receipts are two types-

(a) Tax revenue and (b) Non-tax revenue.

(a) Tax revenue: It is one of the most important sources of public revenue. Tax is a compulsory contribution to the government. The revenue which is collected through tax is known as tax revenue. There are two types of tax which are Direct tax and Indirect tax. Direct taxes are those taxes in case of which the initial burden and the incidence of tax bear the same person. As for example-Income tax, property tax, etc. Indirect taxes are those taxes burden of which bear one person and incidence bear another person is known as indirect tax. As for example-sale tax, GST etc.

(b) Non tax revenue: Revenue receipts other than tax are called non tax revenue. There are various sources of non-tax revenue such as-

(i) Commercial revenue: Commercial revenues are those revenue which are collected by selling goods and services by the government. As for example-electricity charged by the govt, transportation charges etc.

(ii) Fees and fines: Fee is the payment by the citizen for non economic services rendered by the government. As for example- Court fee is charged from those who go for justice. Government also collect revenue by charging fine. As for example- Sometimes government charged fine for violation of traffic rules.

(iii) License fee: The government collect revenue through license fee also. Government charged license fee for doing certain things or activities, registration fee etc.

(iv) Grants and gifts: Sometimes and particularly in war times, individual or foreign government or agency offer funds in the form of gift. Sometimes government may collect revenue in the form of donation and grants from foreign country.

(v) Special assessment: Special assessment is a type of tax which is not imposed on everyone but it collected from those person whose property has increased in value due to certain improve mental works of the government. 

(2) Non revenue receipts or capital receipts: Non revenue receipts are those receipts which either create liability or lead to reduction in assets. As for example- Recovery of loans, borrowing etc. There are various sources of non tax revenue receipts they are as-

(i) Market borrowing.

(ii) Loan from central.

(iii) Loan from abroad.

(iv) Provident funds.

(v) Deficit finance and other receipts.

(vi) Small saving.

The roles or important of public finance are discuss below-

(i) Steady state economic growth: Public finance is an important role to achieve the sustainable a high economic growth rate. The govt. uses the fiscal tools in order to increase in both  the aggregate demand and the aggregate supply. The fiscal tools are public debt, taxes and public expenditure and so on.

(ii) Price stability: The government uses the public finance in order to overcome from inflation and deflation. During the times of inflation it reduces the indirect taxes and general expenditure. In case of deflation the policy is just reversal.

(iii) Economic stability: The government uses the fiscal tools to stabilize the economy. During the times prosperity the govt. imposes more tax and raises the internal public debt. The amount is used to repay foreign debt. The internal expenditures are reduced, during recession the case is just reversal.

(iv) Equitable distribution: The government uses the revenues and expenditures of itself in order to reduce inequality. If there is a high disparity or inequality it imposes more taxes on the income, profits and properties of rich people and on the goods they consume. The money collected in used for benefit of poor people through subsidies, allowance etc.

(v) Proper allocation of resources: The public finance is important for proper utilization of natural, man-made and human resources. For example- if on the production and sales of less desirable goods, the government imposes more taxes and provides subsidies or imposes less taxes on more desirable goods.

(vi) Balanced development: The government uses the revenues and expenditures in order to erase the gap between urban and rural, agricultural and industrial sectors. For it, the govt. allocates the budget for infrastructural development and growth in rural areas and direct economic benefits for  the people who live in rural people.

(vii) Promotion of export: The government promotes the exports by imposing less tax, providing subsidies to the export oriented goods. It may supply  in the inputs at the subsidized prices. It imposes more taxes on imports.

(viii) Infrastructural development: The government collects revenues and spends for the construction of infrastructure. It has to keep peace justice and security too. For all these things it uses the revenues and expenditures as a fiscal tools.

Public goods and Private goods:

Public goods are those goods which are provided by the government through government budget to satisfy public wants.

Private goods are those goods which satisfies private wants and are financial and supplied by the market on price payments. In other words, private goods are those goods which are owned privately by individual against payment at money.

Following are the difference between public goods and private goods-

(i) Public goods are those goods which go to satisfy public wants, On the other hand private goods satisfy private wants.

(ii) The problem of free rider problem arise in case of public good where, there is no free rider problem arise in case of private goods.

(iii) Public goods have the feature of non-excludable but in case of private goods we can exclude some one if he is not ready to pay.

(iv) Public goods are non rival in nature ,but private goods are rival in nature.

(v) Public good is provided by the nature or government. On the other hand, private goods are provided by the manufacturer that is entrepreneurs.

(vi) The objective of public good is over all growth and development. But the objective of private good is profit earning.

(vii) In case of public good the demand curve is horizontal but in case of private good the demand curve is vertical.

(viii) Some examples of public goods are police services, fire brigade, public transport, road, river etc. Some examples of private goods are clothes, cosmetics  cars, food etc.