What is the difference between public and private finance?
Finance is the arrangement, management and deployment of funds in an optimum way. It also describes the activities associated with banking, leverage, credit, money, capital market, and investments.
The basic concepts of finance originated from micro and macro-economics theories. The financial service sectors are the core drivers of the economy. These sectors help consumers and businesses to acquire financial goods.
The main types of finance are private finance, corporate finance, and public finance. An example of financial service is offering investment and management advice to a client. Examples of financial goods are bonds, stock, mortgage, and insurance policies.
The main difference between public and private finance is that the former can alter and adjust income based on the expenses while the latter can manipulate the expenses based on the future income.
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Comparison Table (Public Finance vs Private Finance)
|Basic Terms||Public Finance||Private Finance|
|Description||It is the study of income, expenditure, borrowing, and financial administration of government.||It is the study of household income, expenditure, borrowing, and financial administration of an individual or private firm.|
|Time Period||One year||Daily, weekly and monthly budget.|
|Revenue and Expenditure||Revenue follows expenditure.||Expenditure follows revenue.|
|Deficit Financing||Government issue new notes in case of a deficit budget.||Private firms have no authority over issuing of new notes.|
|Nature of Budget||The deficit budget is appreciable.||The surplus budget is appreciable.|
|Compulsory Loans||The government takes compulsory loans from different financial institutions to meet its expenditure.||Private sectors cannot take compulsory loans.|
|Secrecy||Government publicizes its budget to the media.||Private sectors keep their financial reports secret.|
|Nature of Projects||Government has to complete long term projects||Private firms have short-term projects to complete.|
|Nature of Changes||The concern with remarkable changes.||The concern with minor changes.|
|Written Document||Have plenty of written documents.||No written documents needed.|
|Audit System||Revenue and expenditure are regularly checked.||No external audit system needed.|
|Foreign Assistance||Depend on foreign aid.||Do not depend on foreign aid.|
|Sources of Income||Indirect sources||Direct sources|
|Prior Sanction||Come from the cabinet, national assembly, and senate.||No prior sanction.|
|Future Planning||Long-term planning motive.||Short-term planning motive.|
|Use of Financial Resources||Social welfare||Personal satisfaction|
|Record Finance||Keep permanent records.||May or may not keep records.|
|Transparency||All processes are transparent||No transparency|
|Cash Flow||Borrowed from both internal and external factors.||Borrowed from external factors only.|
What Is Public Finance?
It is a finance sector that allocates funds and resources to meet the set budget for public entities. The branch economics spearhead the scrutiny of the meaning and effect of financial policies implemented by the government.
The economic sector is also responsible for examining the effect of taxation and expenditure on the economy and all economic agents. Public finance has a complex scope that rotates around income and expenditure.
The main branches of public finance are public revenue, public expenditure, public debt, budget policy, and fiscal policy. Each branch usually plays a crucial role in the growth and expansion of the economy.
Therefore, public finance is responsible for optimum allocation of resources, distribution of income, and economic stabilization. The core objective of public finance is to handle the social welfare of the country.
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What Is Private Finance?
It deals with the management and analysis of financial activities for households, private firms, and individuals. Private finance usually entails savings, banking, investments, insurance, personal loans, retirement planning, tax management, real estate planning, and fixed deposits.
Private finance is further grouped into personal finance and business finance. Private finance involves dealing with individual financial optimization. Business finance deals with organization financial optimization.
Allocation of income on activities is based on priorities with the help of a budget, savings, protection, and expenses. Factors like the risk involved, need, and future prospects also help to determine private finance spending.
The main purpose of private finance is to meet personal satisfaction such as saving for the future, buying properties, retirement planning, and traveling abroad.
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Main Difference between Public and Private Finance in Point Form
- Private finance aims to maximize profit. Public finance aims to promote social welfare.
- Public finance prefers maintaining a deficit budget. Private finance prefers a surplus budget.
- Private finance transactions are kept secret. Public finance transactions are kept transparent.
- Private finance has no fixed period. Public finance has one year time period.
- Private finance is less elastic whereas public finance is comparatively more elastic.
- Public finance borrowed cash from external and internal factors. Private finance borrowed cash from external factors.
Similarities between Public and Private Finance
- Both aim to satisfy human wants.
- Both rely on the principle of maximum satisfaction and spending.
- Both experience limited resources
- Both make good and bad financial policies
- Both require efficient financial administration for success.
Public and private finance foster the economic growth of a country. The gains from private finance are to benefit individuals only and those from public finance support people at the same level. The categorization tends to benefit the individual.
The core difference between public and private finance is that public finance deal with revenue and expenditure of government sector whereas private finance deal with revenue and expenditure of private sector.
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