Municipal (Public) Finance-Principles

Finance - Introduction

 Finance is an all pervading activity.

A thread running through all

affairs.
 Can not be hived off into single
section or regarded as a separate
aspect.
 Every one of us uses resource.

 A judgment about like benefits and

cost incurred (Decision Making) is
Finance - Introduction

 Limited resources - unlimited wants.

 Application of limited resources to
competing ends offering different
advantages.
 Weighing allocation of resources to one
or more purposes against the relative
benefits of devolving resources to
competing ends.
 Dynamics of ‘finance’ form core of
municipal finance like any other
activity of our life.
 But it is not for ‘private interests’ but
for ‘public interest’.
Finance - Principles

 Dynamics of ‘finance’, dictate

certain hard realities not to be
overlooked by municipal finance
or public finance
 Everything has cost.
 There is no magic wand to wipe
out cost.
 Cost recovery first and foremost
objective
 Failing that minimisation of loss is
the next objective
Finance - Principles

 Finalobjective is maximisation of
wealth, one need to create
wealth to distribute it
 Cost not born directly by
somebody has to be born by him
indirectly or directly and
indirectly by somebody else.
 Best instrument of cost mitigation
or recovery is pricing (user
charges) but it is fundamentally
Finance - Classification

Finance

Private Public
Finance Finance

Persona Corporate Nationa Sub

l / l -Nation
Finance Institution Finance al
al Finance Finance
Municipal Finance - Introduction

 Deals with finances of all types of

the urban local governmental
bodies
 Raising and disbursement of public
funds.
 Investment Decision - comparing
returns and opportunity cost of
various options
 Financing Decision-Providing and
procuring funds in best possible
manners.

 Municipal Finance - Introduction
 Municipal (Public) Finance deals with the
following -
 Financial operations and policies of the
fisc - the state treasury.
 Extent of State intervention.

 Scope of public sector economy

 Size of Public Revenue.

 Raising of the taxes.

 Municipal (Public) Finance - Introduction

 Characteristics of the tax system.

 Distribution of tax burden.

 Realisation of equity aspect.

 Formal and effective incidence of

taxation on production, consumption,
distribution and welfare.
 Pattern of growth and public
expenditure.
 Municipal (Public) Finance - Introduction

 Incurring Public Expenditure - ways.

 Criterion for budget, balancing of
budget.
 Extent of Public Borrowing, debt
manage.
 Deficit financing, its limit/extent.

 Public Finance should not be confused

with public economics.
 Municipal (Public) Finance - Introduction

 Municipal (Public) Finance is a

systematic analytical study of
economic behaviour of State as a
relationship between

 multiple social wants

 scarce productive resources

 having alternative uses

 attainment of general well-being.


 Municipal (Public) Finance - Introduction

Subject matter of Municipal (Public)



Finance
 Public Revenue - methods of raising
funds and principles of taxation.
 Public Expenditure - Allocation of
resource.
 Public Debt - causes and methods of
borrowing.
 Financial Administration - organisation
and working of financial machinery.
 Municipal (Public) Finance - Introduction

Scope of Municipal (Public) Finance -



 The Allocation Function

 The Distribution Function

 The Stabilization Function

 The Growth Function
Municipal Finance - Principles

 In modern context urban local

government is also an economic unit
like a firm or household
 Needs to be driven by objectives
 Rational Behaviour

 Economizing

 Needs to earn, borrow and spend to

achieve objectives
 But being in existence for ‘people’, it has
socio-political and welfare dimensions
beside efficiency
 Transparency, Contestability,
Municipal Finance - Principles

 To sum up –
 Municipal finance first need to
adhere to core principles of
‘finance’
 Secondly it needs to exists for
public interest
 Maximisation of aggregate public
interest through maximisation of
returns on public resources is the
next frontier
 Equitable distribution of
Municipal Finance - Principles
 The first rule of municipal finance
is wherever possible, charge –
recover cost
 Property tax constitutes a suitable
tax from which to finance the
provision of pure, local public
goods
 Services such as water, garbage
collection, public library and
public recreation should be
subjected to pricing.
 Failure to use a proper pricing
system suggest that goals other
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Principles of Municipal Finance