Finance plays a very crucial role in the management, deployment, and arrangement of capital. It deals with all the economic activities regarding credit, expenditures, investments, banking, leverage, etc. The two main branches of finance are public finance and private finance. In this article, we will understand the complete difference between public finance and private finance. This blog contains the following content.
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Definition Of Public Finance
Public finance refers to the finance sector that allocates funds and resources to the public authorities based on set budgets. Public finance deals primarily with public revenue, public debt, public expenditure, budget, financial administration, accounts, auditing, financial control, and taxation. Also, This sector examines and understands all the consequences of government expenditures on different activities, regulations, investment and disbursement of income, taxation, and borrowing on the remuneration.
The four main functions of public finance are:
- It helps to manage income and expenditures by efficient allocation of resources
- Manage the growth and stability of the economy
- Provide the important needs and support to the public
- Divide income among citizens
So, In a nutshell, public finance is the part of a financial study that deals with the govt expenditures and revenue.
Definition Of Private Finance
Private finance is the part of finance that deals with the study of expenditure, borrowing, and financial administration of individuals or private businesses. This covers all the activities related to the private sectors like insurance, savings, banking, investments, tax management, credibility, retirement planning, real estate planning, fixed deposits, and so on. In other words, we can say that private finance is actually the individual’s entire life financial planning.
Public Finance And Private Finance(Comparison Table)
|Basis For Difference||Private Finance||Public Finance|
|Definition||Private finance refers to the study of income and expenditure, borrowings, financial administration, etc. of individuals, households, and private firms.||The study that deals with income/revenue, expenditure, borrowing, and financial administration of the economy or government is called public finance.|
|Time Horizon||Not fixed i.e, day to day, weekly, monthly, etc||One Year|
|Objective||Its main objective is to make and maximize profit.||Promote social welfare.|
|Transparency||Not transparent||The process is transparent|
|Cash Flow||Borrowing from external factors is allowed.||Cash borrowing from both internal and external factors is allowed.|
|Financial Transactions||Are kept secret.||Are open to the public.|
Key Differences Between Public Finance And Private Finance
Some of the main differences between public finance and private finance are as follows.
- Public finance refers to the finance sector that allocates funds and resources to the public authorities based on set budgets. On the other, Private finance is the part of finance that deals with the study of expenditure, borrowing, and financial administration of individuals or private businesses.
- Public finance primarily focuses on the welfare of the general public in the economy. On the other hand, Private finance focuses on maximizing profit and personal benefits.
- While the public finance sector has the capability to make decisions on effectively and deliberately increasing and decreasing the income amount without consequences, the private sector on the other hand cannot make such decisions.
- In public finance, public money(income and expenditures) cannot be kept secret. On the other hand, in the private finance sector, individual has the right to keep their income and expenditures unrevealed because it is their own affairs.
- While public finance is comparatively more elastic than private finance as the individual cannot make quick decisions and changes in his/her income, in private finance it is possible to make huge changes and decisions.
So, we can conclude that the main objective of the public sector is to make social benefits while the private finance sector focuses on creating personal benefits. Still, both of them play a crucial role in a country’s economy and are co-dependent i.e neither can survive without the presence of the other.