PUBLIC

FINANCE

Gross Domestic
Product (GDP)is the
broadest quantitative measure
of a nation's total economic
activity.More specifically, GDP
represents the monetary value
of all goods and services
produced within a nation's
geographic borders over a
specified period of time.

Gross national
product (GNP)is
a broad measure of a
nation's total economic
activity. GNP is the value of
all finished goods and
services produced in a
country in one yearby its
nationals

How do you solve for GDP?

C = 500 + 0.8 Y
I = 400
G = 400
(X M) = -100
a) Solve for GDP
b) What happens to GDP when government spending (G)
increases to 500? Why is the increase in GDP greater than
the increase of $100 increase in government spending?
ANSWER:
a]
Y=C+I+G+(X-M)
Y = 500+0.8Y+400+400-100 =
1200+0.8Y
Y = 1200+0.8Y
0.2Y=1200
Y=1200/0.2=6000
GDP=Y=6000

b]
G = G-G = 500-400 = +100
Y = G/(1-0.8) = 100/0.2 = +500
or
0.2Y=1200+G
Y = (1200+G)/0.2 =
(1200+100)/0.2 = 1300/0.2 = 6500
It's because of multiplier effect.

How do you solve for GNP?

Change
in GNP
per
capita
in a year

Country A
Country B

GNP per
capita
at the
start
of the
year

Changes in
Annual
GNP per
GNP per
capita
capita
during
growth rate
the year
$110
[-$3]
[-2.7%]
$1,700
[$110]
[6.9%]

GNP per
GNP per
capita at
capita at
the start
the end
of the year of the year
$113
$1,590

100

Annual
GNP per
capita
growth
rate (%)

Public Finance
-Collection of taxes from those who benefit from the
provision by the government .
-Use of tax funds toward production and distribution of
the public goods.
-is the study of the role of the government in the
economy.
-It is the branch of economics which assesses the
government revenue and government expenditure of
thepublicauthorities and the adjustment of one or the
other to achieve desirable effects and avoid
undesirable ones.

Public Finance and Ideology

How should a government function in economic
sphere?
Organic view community stressed above individual.
Goals of society set by the state.
Mechanistic view government is a contrivance
created by individuals to better achieve their
individual goals. Individual, not group, is at center
stage.

What is Public Budgeting?

How governments
strategically plan a budget
Manage ongoing activities
Control spending

Basic principles of Public Finance

Comprehensiveness
include all revenue and expenditure, all agencies

Accuracy
record actual transactions and flows

Annuality
cover a defined period of time (e.g. one year
budget, multi-year forecasts)

Authoritativeness
only spend as authorized by law

Transparency
information on spending is public, timely,
understandable

hreefold of Public Financ

EFFICIENT
EFFICIENT
ALLOCATION
ALLOCATION OF
OF
RESOURCES
RESOURCES

PUBLIC
FINANC
E
MACROECONOMI
MACROECONOMI
C
C STABILIZATION
STABILIZATION

DISTRIBUTION
DISTRIBUTION
OF
OF INCOME
INCOME

Subdivisions form the subject

matter of Public Finance.
Public expenditure
Public revenue
Public debt
Financial administration
Federal finance

What is economic growth?

increase in the production and
consumption of goods and services.
entails increasing population and/or
per capita consumption
indicated by increasing gross
domestic product (GDP).
refers to an economy that is getting
bigger, not necessarily one that is
getting better.

Level of economic development expressed

through five groups of indicators.

the
the
the
the
the

total social product

structure of social production
level of employment of the population
level of utilization of natural resources
level of labor productivity

Types of Public Finance

ACT of 26 November 1998
on Public Finances
Section I
The General Principles of Public Finances
Art. 3.
A. The following shall be public funds:
1) public income,
2) funds derived from foreign sources, not
returnable,
3) revenues of organizational units and legal persons
classified under the public finance sector, derived from
activity and other sources,
4) revenues of the state budget and of budgets of
local government
units, derived from:
a) sale of securities and other financial
transactions,
b) privatization of assets of the State Treasury
and assets
of local government units,
c) repayment of loans granted from public funds,
d) obtained loans and credits.

Types of Public Finance

B. The following shall be public income:
> public levies which include taxes and other cash
payments incurred for the state under separate laws.
> Other income, namely:
a) fees,
b) income from property, especially from lease or
tenancy and other
agreements of a similar character,
dividend on capital brought in,
c) income from the sale of things and rights as well as
from performing services by the units referred to in art. 5
para. 1,
d) income from the sale of rights that is not revenue in
the meaning of para. 1 subpara. 4 let. a),
e) inheritances, and gifts in cash,
f) other income obtained under separate regulations,
provided it is collected by bodies financed with public
funds or by units referred to in art. 5 para. 1,
subordinated or supervised by these bodies.

gnificance of the Public Finance

T o improve efficiency, accountability and
transparency in public fund use in order to ensure
the direct, immediate, substantial and economical
delivery of public services especially to the poor.
To Improve Accountability and Transparency.
To clarify, simplify, improve and harmonize the
governments financial management processes
and information systems that will cover all
transactions of government and apply uniformly
to all government agencies.
references:
International monetary fund.org SUMMERS, R. and A. HESTON, 1988, "A New Set of
International Comparisons of Real Product and Price Level Estimates for 130 Countries,
1950-85", Review of Income and Wealth.

Expenditure Cycle
Financial management system boundaries

Planning
system

Project
appraisal

Medium term
plans, e.g. three
year rolling plans

Resource
allocation

Annual budgets
Development,
recurrent and
revenue

Expenditure
review

Public expenditure
review

Institutions

Fund release
procedure, e.g...
warranting

Accountability

Audit system

Reports and
financial statements

Accounting for
revenue and
expenditure

National Government Cash Budget

1996 to 2013
(In million pesos)

World Public Finance

Asian Countries Public

Finance

Common problems
Weak links between policy, resource limits, and budgets
failure to achieve strategic objectives
abstract planning, unrelated to ways and means

Annual focus leads to suboptimal choices

Digging a hole; inability to climb out
Complacency today, unaware of crisis tomorrow

Separation between capital and recurrent budgets

Lower than expected returns to capital

Non-comprehensive budget
Using other means to support favored programs
Revenues not captured in budget

Taking piecemeal decisions without reference to over-all

effect
Funds dont reach intended beneficiaries
Budget executed differently than approved

Goods and services not delivered as planned

THE END!!!