Public and Private Finance
Finance is an offshoot of economics, which deals with organizing, managing and distributing money in an optimal way. It has two main branches – private finance and public finance. Private Finance is all about managing finances at an individual level.
On the other hand, public finance is a field of finance in which the role of government and the impact of the various activities carried out by the government in an economy are studied.
One of the main differences between private and public finance is in the power of an eminent domain. This means that when we talk about private finance an individual’s sources of income are confined, however, in the case of public finance, the government can use its power and collect taxes, mint coins and print banknotes.
Definition of Private Finance
When finance optimization is performed at a micro level, it is called Private Finance.
Therefore, private finance is the management and analysis of the financial activities of an individual, family, company, etc. which can cover savings, investments, insurance, banking, personal loans, tax management, creditworthiness, fixed deposits, retirement plans, real estate planning and so on.
It involves dividing or apportioning revenue into various items, based on their priority with the aid of a budget, savings, protection and expenses, and after taking into account various factors such as risk involved, needs, future prospects, etc.
Your goal is to achieve personal financial goals, which could be anything from saving for the future, buying a property, traveling abroad, planning for retirement, etc.
Definition of Public Finance
Public Finance refers to that part of finance that is related to the financial activities of public authorities at different levels, i.e. central, state and local, and the alternative ways of financing government expenditure. It is also called the public sector economy, as the development of the nation depends exclusively on it.
Includes – public revenue, public expenditure, public debt, financial administration, budget, accounts, audit and financial control. The analysis of public finances aims to understand the consequences of government spending on different activities, regulations, taxes and loans on wages, investments and revenue disbursements.
It has three main functions:
- Optimum allocation of resources
- Income distribution
- Economic Stabilization
comparison chart
| basis for comparison | Private Finance | public finances |
|---|---|---|
| Meaning | Private finance is the study of income and expenditure, loans, etc. of individuals, families and companies. | Public finance is related to income / income and expenditure, borrowing, etc. economy or government. |
| Settings | Individuals adjust their spending according to their income. | The government adjusts revenue according to the size of expenditures in different segments. |
| goal | To maximize profit. | To promote social welfare. |
| Nature of Budget | An individual tries to maintain a surplus budget. | The government prefers a deficit budget. |
| financial transaction | Transactions are kept secret. | Transactions are open and known to all. |
| time horizon | No fixed period | One year |
| Elasticity | Any less | comparatively more |
Main differences between public and private finance
The difference between public and private finance can be discussed in the points below:
- Public Finance refers to the branch of finance that studies the financial transactions of government, including government spending, borrowing, deficits, and taxation. On the other hand, by Private Finance, we mean the study and analysis of income, expenditure and debt of individuals, companies and private families.
- In public finance, the government first looks at the total expenditure to be made in the different sectors and then identifies the sources from which revenue can be generated to meet these expenditures. On the contrary, in the case of private finance, any individual, family or business company decides the amount of expenditure to be carried out, based on their income.
- The main objective of private finance is to manage finances in such a way as to help to obtain the maximum profit. In contrast, the primary purpose of public finance is the welfare of the general public.
- In private finance, the individual seeks to maintain a budget surplus by spending only a portion of his income. On the contrary, in public finances, the government usually fits a deficit budget, during the phase of economic development, war or depression.
- In private finance, the individual’s income and expenses are his responsibility and therefore can be kept secret. On the other hand, in public finance, the government uses public money, to provide public utility services, so it cannot be kept secret.
- Public finance is related to the government’s annual budget, which is fixed, but private finance is related to the daily, weekly or monthly budget of an individual or family.
- Public finances are relatively more elastic than private finances because an individual cannot make sudden and huge changes in his income, but the same is possible in the case of public finances.
