To the Science of Public Finance - Budget and Budget System

Towards the Science of Public Finance

As a result of studying this chapter, the student must:

know

- the classical concept of the composition of the science of public finance;

- the most famous theories of public finances, their content and representatives;

- the main ideas and representatives of the marginalistic theory of the budget;

be able to

- to structure the main elements of the science of public finance;

- to analyze the main theses of classical concepts of public finance;

own skills

- Classifications of classical concepts of public finance.

The chapter reveals the essence of the science of public finance. The authors compiled a classification of classical concepts of public finance and provides a detailed analysis.

Key Concepts

Classical school, mercantilism, school of physiocrats, theory of consumption, exchange theory, theory of production, theory of insurance, theory of marginal utility (value)

Various theories of the state formed the basis for the creation of diverse theories of public finance, i.e. aggregate

the formation of material and monetary resources, their acquisition and expenditure, inextricably linked with the very existence of the state and the exercise of its functions. The composition of this theory can be represented in Table. 40.1.

Financial science has a direct connection with macroeconomic theory and statistics. In addition, the concept of financial science is much broader than the concept of financial law. Including financial law in its structure, financial science naturally comes into contact with state law and world history.

The tax system and other aspects of the state financial management have the most significant impact on citizens' budgets, their households. It can be assumed that the more difficult the economic situation of citizens, the more important is the proportion of money withdrawn from them by the government to the state budget.

Table 40.1 . Composition of the science of public finance

No.

The subject of the analysis

Discipline

1

The presentation of the theoretical foundations of various types of public revenues and expenditures, including the level of local government

Budget device and budget process

2

Study of the current financial legislation and its development

Financial Law

3

Study, analysis and critical evaluation of actual quantitative material related to public finance

Finance Stats

4

Establishment of rational bases for management of components of public finance.

Fiscal Policy

5

The study of public finances in their historical development

The history of finance and financial thought

Since collection of taxes and other mandatory payments occurs using the enforcement machinery, the issue of optimal taxation is important.

The essence of the science of public finance is understood as the study of ways to obtain and rational redistribution of funds by the state. An objective ideal of a financial economy can be considered such an organization of these methods, when the state can effectively perform its functions, and the transfer of these funds from enterprises and households does not worsen the economic situation of economic entities. Funds drawn from the private sector of the economy should be reproduced in the form of an appropriate set of efficient and useful services provided by the state to the private sector - firms and households.

Obviously, understanding the essence of public spending follows entirely from the concept of the essence of the state, its role and functions, is determined by the organization of the state, the form of government, the organization of government institutions, the tasks of economic policy, the availability of state and public financial control,

Thus, the subject of the science of public finance is to explore ways to best meet the material and financial needs of the state. This science of the public economy, which has as its task the statement of those norms that must be observed when obtaining the material and monetary resources necessary for the performance of public purposes.

In the Ancient World, financial science, if at all relevant to talk about the existence of just such a science, was purely applied and ethical. The existence of the state meant collecting taxes and spending the bulk of them on security and infrastructure. These issues were devoted to individual fragments of work, primarily Xenophon (430-354 BC), Plato, Aristotle.

In the Middle Ages, this science also almost did not exist due to the weak development of the financial economy. Nevertheless, representatives of the philosophical school of the Scholastics and, above all, Thomas Aquinas actively developed the idea of ​​the right of the emperor in the interests of the common good to resort to taxes if there is not enough domain or regalia. However, Thomas Aquinas speaks out against state debts, which, in his opinion, undermine the respect of subjects to the sovereign and weaken the state.

Francesco Petrarca (1304-1374) in his composition "On the best management of the common cause, services and dignity of the sovereign" (1356) (according to the genre attributed to the "prince's mirrors", ie, instructions on public administration), holds the idea that the sovereign should only resort to increasing taxes in extreme cases, and actively opposes tax farmers.

The emergence of the science of public finance, but rather its significant beginnings, can be attributed only to the XV century. Initially, financial science develops in the Italian and German trading city-states, principalities and republics. With a certain degree of certainty, it can be argued that this was a period of mercantilism in the development of the science of public finance. During this period, there is a strong relationship between research on taxation problems (primarily excises) and the development of foreign and domestic trade.

The authors to whom financial science owes its origin are Diomede Karaf (1406-1487), Matteo Palmieri (1406-1475), Francesco Guicciardini (1483-1540) and Giovanni Botero (1544-1617), whom prominent American economist Josef A. Schumpeter (1883-1950) proposed to refer to the German manner as "cameramists" (from the camera) - a treasure room.

In our opinion, it is the Neapolitan Duke Diomedes Karafa who can be considered the ancestor of financial science. He argued for moderate taxes, for the necessity and desirability of correlating income and expenditure, for channeling additional revenues to the growth of general welfare, but strongly opposed all types of loans. In encouraging foreign and domestic trade, he sought the basis for financial prosperity. However, his work was purely normative, there was no attempt to analyze the situation or even describe specific economic cases.

The views of the scholastics and mercantilists reflected on the financial theory of the French scholar Jean Bodin. His name is directly related to the deepening analysis of financial science. His classic work "The Six Books on the State" (1576) provides a detailed systematic overview of questions about public finances and the genre is similar to the "Policy" Aristotle.

F. Boden is opposed to tax increases, and a population census is recommended to form a taxable base. In the sixth part of his work, he examined in detail a significant part of the key concepts of financial science, especially in terms of income.

Since the eminent English economist William Petty (1623-1687), the science of public finance goes hand in hand with the development of the science of the state and economic theory (at that time, political economy), reflecting virtually all of their currents.

The work of W. Petty Tax and Tax Treatise (1662) became a point of demarcation of mercantilism and classical theory in the science of public finance. He examines the reasons and ways to reduce the hardships of various types of expenditure, the various methods of taxation (land tax, duty, poll tax, tithe and excise), as well as their administration up to punishments.

In the Age of Enlightenment, it should be noted, speaking of the grounds for taxation, T. Hobbes. In the work "Fundamentals of Philosophy. Part Three. About the citizen (1646), he speaks of the absolute right of the sovereign to impose taxes on subjects. At the same time, he points out the need to observe moderation and uniformity in the distribution of taxes, while preferring indirect taxes, which, in his opinion, are paid in proportion to the property state.

Somewhat later, approaches to taxation, according to which preferences are given to direct taxes, come to the fore. The expression of this trend is J. Locke, who in his work "Some considerations about the consequences of a decline in interest and a rise in the value of money" (1692) writes in detail about direct taxation, while expressing an important idea about the introduction of a single tax, which will subsequently be used at different times by different financial currents. J. Locke tries to prove that in a country with a predominance of agriculture, the tax burden falls on land ownership. Moreover, all other taxes, especially on goods, are also ultimately borne by the landowner.

Of the important works of French specialists, it is worthwhile to note the work of Marshal Sebastian Vauban (1633-1707) "The Royal Tithing Project" (1707). In his best economic work, the author analyzes and criticizes the modern French financial system, the consequence of which is the poverty of the people and the economic decline of the country. He suggests replacing all existing taxes with one royal royalty. It is obvious that the idea itself was inspired by the long medieval practice of the church tithe.

Contemporary Vauban Pierre de Boisguillebert (1646-1714) left a number of works on public finance. He was probably the first who dwelled for the first time on the issue of the interrelationship of expenses and incomes and their balance by resolving it quite unexpectedly in the left-hand direction - recommending to increase the taxation of the rich who accumulated their wealth through "crimes and violence."

An important contribution to the development of financial science was made by Francois Quesnay (1694-1774) and the physiocratic school of economic theory he headed. In a number of his works he argued that since agriculture is the only ultimate source of wealth, public finances can be greatly simplified by introducing a single direct agricultural or land tax, in proportion to ground rent.

Moreover, the physiocrats had a great influence on the development of other branches of the science of public finances. They introduced financial phenomena to the sphere of research of political economy and thereby contributed to their further scientific development. The physiocrats created the theory of the transfer of taxes. With their doctrine of net income, they laid the foundation for the further development of the theories of land rent and income so important for questions of taxation. They made a significant contribution to the analysis of the differences and prospects for direct and indirect taxation.

The undoubted pinnacle of the science of public finances was the work of the German economist Johan Heinrich Gottlieb von Juste (1717-1771) and the best of them "The System of Public Finance" (1766), in which, with encyclopedic vastness, he presents his current knowledge of public finances according to the cameral approach in financial science. Samuel von Pufendorf (1632-1694) and Josef von Sonnenfels (1732-1817) also belong to the classics of this trend.

To a large extent, they focused on the development and study of government regulations for the management of the state economy. Moreover, the issues of state finances were mixed with extensive information from different sectors of the concrete economy, which were considered necessary to satisfy the fiscal interest of the state.

The next stage in the development of the science of public finance was the world-famous work of Adam Smith (1723-1790), "The Wealth of Nations" (1776). About this work J. A. Schumpeter wrote the following: "The composition consists of five books. The fifth, the most extensive (28.6% of the total), is an almost independent treatise on public finances. It was to become the basis for all treatises of the XIX century on these issues ...

A. Smith became a classic not only in economic theory, but also in the science of public finance. He deserves credit for clarifying the connection between finance, the national economy, and the dependence of the financial economy on the people's economy. According to A. Smith, since there are three sources of national wealth: land, labor and capital - hence, different forms of taxation are possible depending on the source of income. He considers taxes not only individually, but in a common connection with each other.

A. Smith formulated the generally accepted rules of taxation: a) taxpayers must pay taxes in accordance with its solvency; b) the amount of each tax must be precisely determined, as well as the time, method and place of payment; c) any established tax should be levied at a convenient time for the taxpayer and in the most rational manner; d) taxes should be arranged so that the costs of their collection are minimal.

Curious is the remark of the well-known German financial scientist Karl Theodor von Eeberg (1855-1941): "Unfortunately, the too close external connection between financial science and economic theory, established by A. Smith, who considered finance in the fifth book of his" Wealth " peoples ", greatly hampered their further development." As a result, it should be noted that at the turn of the 18th century, thanks to A. Smith and his numerous predecessors, the science of public finance was formed, which became one of the most dynamically developing ones. For a long time in the field of financial science, disputes were held about the nature of financial phenomena. A number of theorists have tried for logical harmony to link them to any one basic principle. Thanks to this, several financial theories have emerged. As a result, the following classification of public finance concepts can be cited, depending on their key category (see Table 40.2).

Table 40.2. Classification of classical concepts of public finance

No.

The key concept of the theory

Thesis

Classic representatives

1

Consumption

Public finance is the consumption of material goods

J.-B. This

2

Exchange

Public finance as a result of the exchange of services between society and the state

W. Montesquieu

3

Production

Public finance is the result of the state's production of material goods

F. Storch

4

Insurance

Public finance as a system for managing the insurance premium of a company

D. Ricardo

5

Utmost Utility

Public finance as a result of marginal utility

A. Marshall, J. B. Clarke

We turn to a more detailed presentation of the theories presented.

1. The concept based on the consumption of services. The continuers of the teachings of A. Smith linked all financial phenomena with consumption. The representative of this theory is, for example, the French economist Jean-Baptiste Say (1767-1832). The essence of his views is that public finances are an unproductive consumption of material goods. Since such a kind of consumption in the name of the performance of the functions of the state is inevitable, it must be limited to the minimum permissible limits, i.e. consumption by the inevitable, but subject to limitation, possible minimal limits.

Government expenditures play a role similar to the one played by the city for the village. Since the moment the money was paid to the state by the taxpayer, their value for the payer has been lost. However, when this value is used by the state, it will be lost to the whole society as a whole. Any tax that is not proportional to the benefit received from the state is a degree of irrationality and ineffectiveness of the activity of this state.

2. Theory of mutual exchange. A number of English and French authors, first of all S. Montesquieu, put forward the idea that the basis of public finance is the phenomenon of exchange. There is an exchange of public services for a certain share of income and property of individuals and enterprises.

The basis of the tax is not the will of the state, but a phenomenon of a natural order. The society needs joint activities, the maintenance of which taxpayers facilitate by exchanging their material resources for the services rendered by the state. The state is a producer of public goods that are provided to citizens who need them.

3. The idea of ​​state production of goods. Some German authors believed that the state is a part of society that is the producer of non-material wealth. The tangible wealth is produced by enterprises and households that are transformed into the blessings of security, justice, education, etc.

In particular, this position prevailed the famous United States economist of German origin, Henryk Friedrich von Storch (1766-1835). So, he wrote: "... if you admit that the income of a nation is equal to its gross product without any deduction of capital, it should also be recognized that this nation can unproductively consume the entire value of its annual product without causing the slightest damage to their future income. The products that make up the capital of a nation can not be consumed. "

The state is a significant transducer and producer of non-material goods and services. Any kind of government expenditure to be productive must, as a result, return costs and bring benefits. The value of the wealth that makes up public spending is fully restored in the value of the benefits they generate.

4. The concept of an insurance institution. According to this theory, the state is viewed as a kind of insurance institution, to which economic agents pay a certain premium for the protection and saving of their property and wealth. The issue of public finances is the most effective allocation of the paid insurance premium, depending on the risk that the state takes on the main types of state functions being realized.

The largest representative of this theory is David Ricardo (1772-1823). Having extensive experience in practical work, he believed that the main source of government revenues is the profit of enterprises. The specific form of tax is not essential. However, the general taxation must be organized by the state efficiently and fairly.

In addition, according to these social theories, the tax serves as a means of reducing the wages of the working people and the source of the maintenance of idle classes and social groups. Such views were held, for example, by F. Lassalle.

The considered theoretical direction had a huge positive impact on the development of questions about progressive taxation and inheritance and capital taxes.

5. The theory of marginal utility. Most Marxist classics, especially Englishman A. Marshall (1842-1924) and American JB Clark (1847-1938), pointed out the connection between the basic principles of building public finances and the phenomenon of marginal utility utility. State incomes and expenses, conditioned by the requirements of public order, are incomes and expenses of enterprises and households, consumed for public needs, but whose utility is highly individual, their value is subjectively determined.

State revenues and expenses are estimated by the average of all subjective estimates. The need for coexistence causes the need to spend every economic agent in favor of general welfare. If there are collective needs that are different from the individual, then their satisfaction can be achieved only through the use of income in favor of the state, which performs the functions necessary for public life.

In addition, it is on the principle of gradation of subjective utility marginalists based their concept of progressive taxation. A number of modern researchers working in the field of public finance, adhere to the marginalist concepts, considering the various financial institutions of the state.

In conclusion, it should be noted that the above concepts and ideas gave the most general overview of approaches to understanding the state phenomenon and its comprehension. Disclosure of the main characteristics of classical theories of the state made it possible to approach the analysis of economic thought aimed at the formation of the science of public finance in its early stages prior to the beginning of the classical period.

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