Economics · Chapter 7
Study notes aligned to the official NEB syllabus.
Government finance, also called public finance, is the branch of economics that studies the income and expenditure of the government and the management of public debt and the budget. Unlike a private individual, who adjusts expenditure to income, the government first decides its expenditure to meet public needs and then arranges the income to meet it. This chapter explains the meaning and importance of government finance, public revenue, public expenditure, taxation, public debt and the government budget in the Nepalese context.
Government finance deals with how the state raises resources, how it spends them, and how it borrows and repays. Its importance has grown greatly in modern times. It helps to provide public goods and services such as defence, administration, roads and education, to redistribute income and reduce inequality, to promote economic growth and employment, to bring economic stability by controlling inflation and recession, and to allocate resources to priority sectors. In a developing country like Nepal, government finance is a major instrument of planned development.
Public expenditure is the spending by the government to perform its functions. In the Nepalese budget, expenditure is broadly classified into recurrent expenditure, capital expenditure, and financing (principal repayment). Recurrent expenditure is the spending on the day to day running of the government, such as salaries, pensions, interest payments and administrative costs. Capital expenditure is the spending that creates assets and adds to the productive capacity of the country, such as roads, bridges, hydropower and buildings. Financing includes repayment of the principal of loans. Public expenditure has grown over time because of the expanding role of the state, rising population, development needs, defence and rising prices.