1[1]. Municipal Finance - Principles Cept

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

 Final

objective 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 Finance Persona l Finance

Corporate / Institution al Finance

Public Finance Nationa l Finance

Sub -Nation al 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

Thank You Principles of Municipal Finance