a. Categories of public finance

(i) Public revenue: This deals with the various sources of revenue that is available to the government, the comparative advantages and disadvantages of each of the source of revenue as well as the principles that govern them. Among the sources of revenue to the government are taxation, non-tax revenue and others. Of all the sources of revenue, taxation is the most important and deserves special treatment.

(ii) Public expenditure: This is an important tool in the hands of the policy makers as it can be used to achieve various economic objectives of the government such as allocation of resources, redistribution of income and wealth, stabilisation of prices and employment as well as achieving optimum growth rate. It is through public expenditure that government contributes to the financial flows of the economy, regulates the patterns of demand and supply, as well as implement welfare programmes.

(iii) Financial administration. This involves the budget, its formulation and execution of the various objectives of the objectives specified in the budget. It also includes the government accounting, auditing as well as the other financial operations of the public authorities.

(iv) Economic growth and stabilisation. The objective of economic growth and stabilisation is usually the major focus of government policies. To that extent, it is the concern of public finance that there should be prudent utilisation of scarce resources to ensure the achievement of these objectives.

(v) Federal finance. The practice of fiscal federalism necessitates the assignment of expenditure and revenue responsibilities among the multi-levels or tiers of government and the attendant challenges and possible solutions of inter- governmental financial flows.

b. Rationale for public sector in the economy

Government involvement in the economy can be explained by any or combinations of these factors.

(i) Political and social ideologies: The need for government can be explained by the existence of political and social ideologies which is different from the principle of consumer‟s behaviour guided by utility satisfaction. More importantly, market forces left alone cannot perform all economic functions. Therefore, there is need to guide, regulate and supplement market forces under certain circumstances.

(ii) Allocation of resources: The claim that market mechanism leads to efficient allocation of resources is based on the conditions of perfect competition which presupposes the existence of free entry and exit, perfect knowledge of the market, mobility of factors, lack of preferential treatment among other factors. Government regulations and other measures are required to ensure the presence of these conditions as market on its own will not guarantee their existence.

(iii) Healthy competition: It is the role of government to ensure that competition exists in the production of goods and services. It is therefore expected to improve quality and increase quantity of output. However, in the absence of regulation, competition may become inefficient or at best reduced to decreasing cost.

(iv) Legal structure: An important factor for effective and efficient market system is the legal structure that guarantees punishment for violators of rules and regulations. It is the responsibility of government to ensure strict adherence to rules and regulations otherwise abuse becomes an albatross to economic growth and development.

(v) Externalities: The case of externalities may be a potent factor to explain the rationale for government intervention. Even if the legal structure is provided and all barriers removed, certain goods and services cannot be provided through the market system due to the presence of externalities that cause distortion between private and public appraisal of projects. Externalities can only be tackled through public policy.

(vi) Economic objectives: The economic objectives of full employment, general price stability, optimum growth rate, equitable distribution of income as well as soundness of foreign account cannot be brought about automatically, even in the most highly developed financial economy. Therefore, government policies and other measures are required to achieve these objectives.