Importants of Public Finance

Public Finance Definition1: Public finance is the study of the role of the government in the economy. (Gruber, Jonathan (2005). Public Finance and Public Policy. New York: Worth Publications. p. 2. ISBN 0-7167-8655-9.) Definition 2: The field of economics that analyze government taxation and spending. (Rosen, S. H., Gayer, T. Public Finance, McGraw Hill, 2010)

Definition 3: It is the branch of economics which assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones (Jain, P C (1974). The Economics of Public Finance.) Definition 4: Public finance is the branch of economics which does not try to solve only the problems how to be finance public sector, but even how to influence the economic activities of economic subjects and how to distribute the economical sources… (Tománek)

Definition 5: Public Finance is nothing else than a sophisticated discussion of the relationship between the indivisual and state. There is no better school of training than public finance (Vaclav Klaus)

Historical Overview – tax theories Middle Ages – taxes are collected irregularly to cover expenses of aristocracy. - property tax: taxes from real estates - tolls (using a municipal bridge) - undirect consumption tax: from goods

Tax Theories Tax theories differs after explanation why it is necessary to impose taxes: Exchange theory Ensurance theory Theory of solidarity (victim theory) Capacitance theory Social policy theory Theory of neutrality Theory of one tax Theory of no taxes

The Tax Systems There are several tax systems developed by economists. There are some minimal requirements for efective tax system: to have sufficient revenues to have equal tax burden to implement such taxable instruments, which does not influence economical decisions of taxpayers to have possibility to cover for development activity To be cheap, simple, comprehensive, low administrative

Tax systems A. Smith tax system Liberal tax system Advenced economy system Central plan economy system

Adam Smith Tax System Princip of generality (taxes should be imposed to any memeber of society) Payment ability of society members Precision (condition of tax payment should be precisely and comprehensive defined) Affordability of tax payment for taxpayer Minimal administrative costs for tax system

Liberal tax system Neutrality (taxes should not influence the taxpayers economic decisions) Stability (revenues of public budget should not be influenced by economical cycle) Dynamics (should be dynamic enough to reach balanced budget)

Advenced economy system Horizontal equity (equal tax for all, no matter what is their income) Vertical equity (progressive taxation)

Central plan economy tax system Long term planing (prices are under state control) Sufficient revenues Simplicity Long term stability

Tax equity Horizontal Vertical

The Main Effects of Public Finance Allocation of Resources Distribution of Income Macroeconomic Stabilization