Private Finance Vs. Public Finance
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Private Finance Vs. Public Finance

Private Finance Vs. Public Finance The basic principles of public finance and private finance are the same. Individuals and States are similar in that both need resources. Both have to secure maximum results from their resources. Both attempt to get the best out of all items of expenditure.

Private Finance Vs. Public Finance

The basic principles of public finance and private finance are the same. Individuals and States are similar in that both need resources. Both have to secure maximum results from their resources. Both attempt to get the best out of all items of expenditure.

There are, however, some important points of difference between private and public finance. They are explained as under: —

1.  Adjustment of Income to Expenditure. An individual adjusts his expen­diture to his income. He is advised to cut his coat according to his cloth. But a State first fixes the size of its expenditure - and then proceeds to raise the necessary revenues. Thus, it has to adjust income to expenditure. Expenditure is determined first and the revenues are then raised accordingly.

2.  Period of Time. In the case of an individual, there is no definite period over which the accounts must be balanced. The State tries to balance its budget in the course of a year.

3.  Private Finance is shrouded in Mystery. No individual will permit his neighbor or friends to get any idea as to how he stands financially. But there is no such mystery in Government finance.

4.  In the case of an individual, there can be no internal borrowing; it has always to be an external loan. But the government can borrow both internally from its own people and externally from foreign governments and from foreign people.

5.  An individual has to earn his income, whereas the State gets most of its income from other peoples' income. No doubt sometimes the States also run productive enterprises and get income on their own account.

6.  The State can issue paper currency in order to meet its expenditure. But no such course is open to a private individual.

        7. No Equi-marginalising of utilities. An individual tries to maximize satisfaction from his income by distributing his expenditure in such a manner as to have equi-marginal utility in every case. But State expenditure is done by the Finance Department in an objective manner. There is no such equi-marginalising of utilities.

8.  Surplus budgeting is a virtue for an individual but need not be so for the State. A sensible individual must use less than his income. He ought to have a superfluous financial plan. For an individual, this is considered a virtue. However for a nation it- need not be so.

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