Public Finance - Financing of Government Expenditures

Financing of Government Expenditures

Government expenditures are financed in three ways:

• Government revenue
  • Taxes
  • Non-tax revenue (revenue from government-owned corporations, sovereign wealth funds, sales of assets, or Seigniorage)
• Government borrowing
• Printing of Money or Inflation
• Privatization

How a government chooses to finance its activities can have important effects on the distribution of income and wealth (income redistribution) and on the efficiency of markets (effect of taxes on market prices and efficiency). The issue of how taxes affect income distribution is closely related to tax incidence, which examines the distribution of tax burdens after market adjustments are taken into account. Public finance research also analyzes effects of the various types of taxes and types of borrowing as well as administrative concerns, such as tax enforcement.