This article will help you to learn about the difference between private finance and public finance.
Difference between Private Finance and Public Finance
1. The pattern and volume of expenditure of an individual is influenced by his total resources — income and wealth — but in case of government expenditure determines income. Moreover, government expenditures determine peoples income. If government spends money on road construction, some employment is automatically generated.
2. Private individuals or firms are mainly concerned with private consumption or profits. The government aims at promoting the welfare of society rather than that of the individual. The individual (or a firm) is mainly concerned with his (its) present gains and prospects, not with that of distant future. The government has to serve society generation after generation.
3. Private firms derive income by selling goods and they pay to factors of production according to the quantity or quality purchased. The services of governments are usually made available to individuals quite irrespective of the cost and often at rates that do not cover full costs.
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4. The products or financial assets (like bonds) are voluntarily purchased by members of society. There is no compulsion in this matter. But governments have always a power to force people to do what they want them to do.
Not only people are faced to make compulsory payments through taxes but governments may also force people to buy its own bonds (m times of war or emergency) for raising resources or for controlling inflation.
5. The individual consumer (or firm) must, of necessity, balance his income and expenditure or receipts and payments. But a government may reduce taxes if its income is greater than its expenditure and can raise taxes or incur deficits in the budget in the converse case.
Thus, it is said that, in private finance, the coat is cut according to cloth available, but, in public finance the size of the coat is determined first and then the authorities try to collect the necessary cloth — through sale of goods and services, taxation and borrowing.
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6. An individual can borrow from another individual. But a government can borrow either internally or externally (i.e., from a foreign country).