Methods of Raising Revenue

METHODS OF RAISING REVENUE 4

Methodsof Raising Revenue

Methodsof Raising Revenue

Publicfinance is a branch in economics concerned with how the governmentcollects and spends revenue (Tresch, 2014). This discussion we heldwas centered on the various methods of raising revenue by thegovernment. In this discussion, I took an explanatory role, as I wasenlightened of the different methods of collecting revenue by thegovernment.

Thegovernment raises revenue to provide public goods and services thatthe private market could not sufficiently provide. The failure of theprivate market in providing sufficient goods and service to thepublic leads to a condition known as Market failure. It is because ofthis need to provide goods and services to the public that thegovernment raise revenue of two types: tax revenue and non-taxrevenue. (Tresch 2014)

Taxrevenue is all funds raised through all forms of taxes. Taxes arecompulsory contributions by citizens to the ruling government tosettle an expense incurred in the common interest of all citizenswithout necessary allusion of a particular benefit incurred. Hence,failure to pay taxes is punishable by law. Taxes come in two formsdirect such as income tax or indirect such as Value Added Tax (VAT),capital gains tax, corporate tax, and import duty is incremented inthe initial price of a good. Consumption pattern and the distributionof income and wealth are the macroeconomic effects of taxes. (Tresch2014)

Thesecond primary source of public finance revenue is by grants from oneGovernment to another. Developing countries often receive foreign aidfrom developed countries that may come in the form of economic,military or food aid. These aids are not loans that have acontractual obligation for repayment later.

Anothermethod used to raise public revenue is for the public entities suchas courts to raise funds through fees, fines, and penalties.Government bodies charge the public fees for it to render itsservices. This is however to the advantage of the public. Court feesand license fee fall into this category and are only to be charged tothose who receive the particular advantage

Onthe other hand, fines are punishment levied and collected fromoffenders of the law. The aim of these is to prevent the commissionof an offense and not to earn an income. The fees are determinedrandomly and are not related to the cost of administration.

Surplusfrom State Corporation is also a source of revenue, however, small.Since the state runs railway, the surplus earnings from the railwaycontribute to the revenue collection. The surplus is arrived atbecause the prices are charged just to cover the cost of renderingthe service. Currently, the state runs several corporations and assuch, the contribution pool from the various organizations adds tothe overall revenue collection even though this contribution dwarfsthat from taxes.

Lastly,loans from an international organization such as the IMF(International Monetary Fund), the World Bank are used to coverbudget deficits whereby the sources mentioned above of public revenuecannot sufficiently cover the budgeted public expenditure. Theseloans have a repayment period and interest attached to the loan andare the number one cause of increasing public debt especially indeveloping countries.

Inconclusion, the discussion was a revelation in that it helped meunderstand in details how the public body charged with collectingrevenue to enable the government to discharge its duties of fixingthe Market failures as discussed does so. The discussed also helpedshed the light on the various forms and classification of taxes.Understanding the different ways in which the government raisesrevenue and my duties as a citizen are in the collection of the saidrevenue by the government.

References

Tresch,R. W. (2014). PublicFinance: A normative theory.Academic Press