Public Finance and Government Budget
Public Finance and Government Budget examines government revenue, expenditure, deficits and fiscal policy. BIEAP tests tax classification, budget types, deficit measures and the role of fiscal policy in stabilisation.
Core rules
- Public revenue includes tax and non-tax revenue; public expenditure includes revenue and capital expenditure.
- Direct taxes are paid directly by the assessee and may be progressive; indirect taxes are levied on goods and services and are generally regressive.
- A progressive tax takes a higher proportion from higher incomes; proportional takes the same proportion; regressive takes a higher proportion from lower incomes.
- Revenue budget covers revenue receipts and revenue expenditure. Capital budget covers capital receipts and capital expenditure.
- Revenue deficit = revenue expenditure − revenue receipts.
- Fiscal deficit = total expenditure − total receipts excluding borrowings. Primary deficit = fiscal deficit − interest payments.
- Fiscal policy uses taxation and spending to influence aggregate demand, employment and inflation.
Worked example
Total expenditure = ₹1,200 crore; total receipts excluding borrowings = ₹900 crore; interest payments = ₹150 crore. Fiscal deficit = ₹300 crore. Primary deficit = 300 − 150 = ₹150 crore. Borrowing covers the fiscal gap, but interest is a committed charge.
Traps
Do not confuse revenue deficit with fiscal deficit. Fiscal deficit includes capital expenditure and excludes borrowing. Primary deficit removes interest, not all debt. A surplus budget is not automatically good; it depends on the economic context. Do not call all government receipts taxes.