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TNPSC Free Notes Economy In English – Public Revenue

இந்தக் கட்டுரையில், TNPSC குரூப் 1, குரூப் 2, குரூப் 2A, குரூப் 4 மாநிலப் போட்டித் தேர்வுகளான TNUSRB, TRB, TET, TNEB போன்றவற்றுக்கான  முறைகள் இலவசக் குறிப்புகளைப் பெறுவீர்கள்.தேர்வுக்கு தயாராவோர் இங்குள்ள பாடக்குறிப்புகளை படித்து பயன்பெற வாழ்த்துகிறோம்.

Public Revenue

Public Revenue
 Public revenue occupies an important place in the study of public finance. The
government has to perform several functions for the welfare of the people.
 They involve a substantial amount of public expenditure which can be financed only
through public revenue.
 The amount of public revenue to be raised depends on the necessity of public
expenditure and the people’s ability to pay.
 The income of the government through all sources is called public income or public
 According to Dalton, the term “Public Income” has two senses — wide and narrow.
 In its wider sense, it includes all the incomes or receipts which a public authority may
secure during any period of time.
 In its narrow sense, it includes only those sources of income of the public authority
which are ordinarily known as “revenue resources.” To avoid ambiguity, the former is
termed “public receipts” and the latter “public revenue.”
 In a narrow sense, it includes only those sources of income of the government which are
described as “revenue resources”. In a broad sense, it includes loans raised by the
government also.
Classification of Public Revenue
Tax Revenue
 Tax is a compulsory payment by the citizens to the government to meet the public
 It is legally imposed by the government on the taxpayer and in no case taxpayer can
refuse to pay taxes to the government.
 Some of the tax revenue sources are
 Income tax
 Corporate tax
 Sales tax

 Surcharge and
 Cess
Non-Tax Revenue
The revenue obtained by the government from sources other than tax is called Non-Tax
Revenue. The sources of non-tax revenue are
1. Fees
 Fees are another important source of revenue for the government.
 A fee is charged by public authorities for rendering a service to the citizens. Unlike a tax,
there is no compulsion involved in case of fees.
2. Fine
Fine is a penalty imposed on an individual for violation of the law.
3. Earnings from Public Enterprises
 The government also gets revenue by way of surplus from public enterprises. Some of
the public sector enterprises do make a good amount of profits.
 The profits or dividends which the government gets can be utilized for public

4. Special Assessment of Betterment Levy
It is a kind of special charge levied on certain members of the community who are
beneficiaries of certain government activities or public projects.
5. Gifts, Grants and Aids
 A grant from one government to another is an important source of revenue in the
modern days.
 The government at the Centre provides grants to State governments and the State
governments provide grants to the local government to carry out their functions.
 Grants from foreign countries are known as foreign aid.
6. Escheats
It refers to the claim of the state to the property of persons who die without legal heirs or
documented will.
Public Expenditure and Debt

 Public expenditure refers to government spending incurred by central, state and local
governments of a country.
 Public expenditure can be defined as, “the expenditure incurred by public authorities
like central, state and local governments to satisfy the collective social wants of the
people” is known as public expenditure.
Classification of Public Expenditure are as follows:
Classification on the Basis of Benefit
 Cohn and Plehn have classified the public expenditure on the basis of benefit into four
 Public expenditure benefiting the entire society, e.g. the expenditure on general
administration, defence, education, public health and transport.
 Public expenditure conferring a special benefit on certain people and at the same
time common benefit on the entire community, e.g. administration of justice.
 Public expenditure directly benefiting particular group of persons and indirectly the
entire society, e.g. social security, public welfare, pension and unemployment relief.
 Public expenditure conferring a special benefit on some individuals, e.g. subsidy
granted to a particular industry.

Classification on the Basis of Function
 Adam Smith classified public expenditure on the basis of functions of government into
the following main groups:
 Protection Functions: This group includes public expenditure incurred on the
security of the citizens, to protect from external invasion and internal disorder, e.g.
defence, police, courts, etc.
 Commercial Functions: This group includes public expenditure incurred on the
development of trade and commerce, e.g. development of means of transport and
communication, etc.
 Development Functions: This group includes public expenditure incurred for the
development of infrastructure and industry.
Causes for the Increase in Government Expenditure
 The modern state is a welfare state.

 In a welfare state, the government has to perform several functions viz social, economic
and political.
 These activities are the cause of increasing public expenditure:
1. Population Growth
2. Defence Expenditure
3. Government Subsidies
4. Debt Servicing
5. Development Projects
6. Urbanisation
7. Industrialisation
8. Increase in grants in aid to State and Union Territories
Public Debt
 In the 18 th and 19 th centuries, the role of the state was minimum. But since 20 th century
there has been an enormous increase in the responsibilities of the state.
 Hence the state has to supplement the traditional revenue sources with borrowing from
individuals, and institutions within and outside the country.
 The amount of borrowing is huge in underdeveloped countries to finance development
 The debt burden is a big problem and most of the countries are in a debt trap.
Types of Public Debt
Internal Public Debt
 An Internal public debt is a loan taken by the government from the citizens or from
different institutions within the country.
 An internal public debt only involves the transfer of wealth.
 The main sources of internal public debt are as follows:
 Individuals, who purchase government bonds and securities.
 Banks, both private and public, buy bonds from the government.
 Non-financial institutions like UTI, LIC, GIC, etc., also buy the government bonds.
 Central Bank can lend the government in the form of money supply. The Central
Bank can also issue money to meet the expenditures of the government.

External public debt

 When a loan is taken from abroad or from an international organisation it is called
external public debt.
 The main sources of external public debt are IMF, World Bank, IDA and ADB, etc.
 Loan from other countries and the governments.
Causes for the Increase in Public debt
 War and Preparation of war
 Social obligations
 Economic development and deficit
 Employment
 Controlling inflation
 Fighting depression
Methods of Redemption of Public Debt
 The process of repaying a public debt is called redemption.
 The government sells securities to the public and at the time of maturity, the person
who holds the security surrenders it to the government.
 The following methods are adopted for debt redemption:
1. Sinking Fund
 Under this method, the government establishes a separate fund known as
the “Sinking Fund”. The government credits every year a fixed amount of
money to this fund.
 By the time the debt matures, the fund accumulates enough amount to pay
off the principal along with interest.
 This method was first introduced in England by Walpol.
2. Conversion
 Under this system, a high-interest public debt is converted into a low-interest
public debt.
 Dalton felt that debt conversion actually relaxes the debt burden.
3. Budgetary Surplus
 When the government presents a surplus budget, it can be utilised for
repaying the debt.

 A surplus occurs when public revenue exceeds the public expenditure.
4. Terminal Annuity
In this method, government pays off the public debt on the basis of terminal annuity in
equal annual instalments.
5. Repudiation
 The government does not recognise its obligation to repay the loan.
 It is certainly not paying off a loan but destroying it.
 However, in the normal case the government does not do so; if done it will
lose its credibility.
6. Reduction in Rate of Interest
Another method of debt redemption is the compulsory reduction in the rate of interest,
during the time of financial crisis.
7. Capital Levy
 When the government imposes a levy on the capital assets owned by an individual
or any institution, it is called a capital levy.
 The fund so collected can be used by the government for paying off wartime debt
 This is the most controversial method of debt repayment.


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