Finance is a study of the management of money. In technical terms, we say that finance is a branch of economics that deals with the management, and use of money. There are two types of finance: public and private finance. The government manages public finances. Whereas The private sector includes all private businesses, and profit and non-profit organizations. In this article, we will discuss the difference between public and private finance.
Difference between public finance and private finance
Difference between public finance and private finance
Difference between public finance and private finance
What is public finance?
Public finance is a study of the income and expenditure activities of the government. According to Wikipedia, the definition of public finance is. “It is the branch of economics that studies the revenue and expenditure of the government. And the change of one or the other to achieve desirable effects and avoid undesirable ones.” The goal of public finance is to benefit the public. Government has many resources to gain income. Public finance has three main functions.
- The effective use of available resources.
- Income distribution among citizens.
- The economy’s stability.
There are five main components of public finance. – tax collection, expenditure, budget, the national debt. Government has many resources to get revenue. Collecting tax is the main resource of the government. The government spends that money on projects. Those projects are beneficial to the general public. Such as building roads, providing electricity, water, etc.
Government usually makes a budget for the expenditures of projects. When expenditure is more than income then budget is deficit budget. To increase the collection of taxes, the government borrows money. Which increases the national debt. Governments usually prefer deficit budgets. Because it helps in economic growth, causes positive inflation. The development of entire nations depends on the effective management of public finance. Public finance plays an important role in reducing economic inequalities.
What is private finance?
The study of private finance includes the income and expenditure of a person or company. The goal of private finance is to make a profit and fulfill private desires. In private finance, individuals or a company have fewer resources to earn an income. Individuals or companies prefer surplus budgets to make a profit.
There are two types of private finance – Personal finance and business finance. Personal finance is only limited to an individual or household level. It includes investment, banking, saving, loans, tax management, and retirement planning. Individuals make short-term investments where they can earn quickly. They always consider their income before making investments. Business finance means the management of the financial activities of a company. In this, we study how to get capital and use it for the growth of the company. Well, management of finance can help increase the capital of a company.
Difference between public finance and private finance
| Basis | Public finance | Private finance |
| Definition | Public Finance is a study of government revenue and expenditure activities. | Private finance is the study of the revenue and expenditure of individuals and private entities. |
| Objective | The objective of public finance is to benefit the public. | The objective of private finance
is to make a profit. |
| Budget | The government chose a deficit budget. | Private individuals prefer surplus budgets… |
| Motive of Expenditure | Government make a transaction for
public benefit. |
private individuals make business transactions for
profit. |
| Financial transaction | government make its
budget proposals and allocation of resources to the public.
|
In private finance, an individual can keep their transaction
secret.
|
| Currency ownership | Government has full control over the currency. | Private individuals have control over the currency. |
| Long term consideration | The government invests in projects that are beneficial for the public. | Private investors put their money where the returns are quick and immediate. |
| Determination of expenditure. | The government first decides the amount of
expenditure and then finds resources of income. |
A private individual considers income first and then decides how much to spend. |
| Resources | The government have more resources to make money such as printing
currency, passing laws to increase its income etc. |
Individuals have fewer resources to make income. |
| Coercive methods | Government can use coercive methods to get income such as taxes. | Private individuals cannot use force to get income.
|
In this article, we studied the difference between public finance and private finance. Public finance involves the financial management of the state government. And, private finance involves the financial management of a company or an individual. Though there is a difference between public finance and private finance. But the aim of both finances is to benefit and fulfill desires. However, public finance concerns public benefit, and private finance concerns individual benefit.
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