Polytechnic University
of the Philippines
MASTER IN PUBLIC ADMINISTRATION
Open University System, Lopez Campus
Lopez, Quezon
HARREL M. PAYCANA
MPA Student
09-000014-3
PROF.
FLORENDA S. FRIVALDO
Subject Professor
PUBLIC FISCAL ADMINISTRATION
PA 626
The development of public finance institution
EARLY PUBLIC FINANCE
A. Ancient
Finance: The Slave Societies
B. Medieval
Public Finance: Feudalism
THE BREAKDOWN OF FEUDALISM: BEGINNINGS OF
CAPITALISM
A. The
Rise of Central Government
B. Beginning
of Capitalism
A. Adam
Smith
B. David
Ricardo
C. John
Stuart Mill
D. Adolf
Wagner
A. Marxism
B. Basic
Features of Socialist Public Finance
As a system
It
includes the environment, structures, systems,
processes, and personalities involved in formulating, implementing and evaluating fiscal policy.
FISCAL POLICY – refers to the mix
of policies on taxation, expenditures and borrowings for the achievement of
government objectives.
DEVELOPMENT OF PUBLIC FINANCE
- Development of Public Finance institutions merely reflects the development of organized society, particularly the state.
- Changes in concepts of what should be the functions and responsibilities of the state have to a large extent shaped concepts of what the goals of public finance ought to be.
- Public finance raises and spends revenues for the functions of the state.
- Functions have been changing with the development of society.
- Tracing the development of public finance institutions necessitates an examination of the development of organized society.
STAGES OF DEVELOPMENT
- Primitive societies
§ There
was not probably much public finance to speak of
§ The
primitive tribes were on a subsistence basis, with hardly any surplus
§ Whatever
acquired from hunting and fishing was immediately consumed
v Battles
over territories, the capture of defeated tribes who were turned into slaves,
the development of settled agriculture and rudimentary advances in the
production of goods led to the great slave empires of Asia, Africa and Europe.
- Slaves states
·
Their early public finance
served as foundations for modern institutions and practices.
·
Ancient
public finance provided some of the basic instruments
of public fiscal management like
v EXPENDITURES –
which is characterized by enormous public expenditures for defense and
aggression
- To protect and maintain the
state system
Constant
aggression within and from outside
Perpetrate
aggression to eliminate its neighbours
Expands
its frontiers
Consolidate
its territories
Provision
and maintenance of armies and navies
(PUBLIC FINANCE started with
WAR ACTIVITIES) this was the largest single item of expenditures in ancient
times.
- Preservation of internal
peace, order and security and the administration of justice
Administration
of justice (for free citizens only)
Security
within and without
- Maintenance of state
religion
Elaborate
bureaucratic structures were set up state religions
Massive
temples were erected
- Maintenance of the King and
his household
Inalienable
right of the sovereign
It
was people’s obligation to provide him with revenues and to spend such (divine
obligation)
- Building and maintenance of
public works
- Distribution of free grains
in times of famine
v TAX and
REVENUE ADMINISTRATION – the state has to imposed
and collect revenues.
- State’s revenues were
ordinarily limited to: LOOTINGS and TRIBUTES from conquered peoples, war
chests, fines, and direct taxes imposed on non-citizens of the state or on
conquered people.
Ancient governments had little need for direct
taxes since they levied tributes on conquered peoples.
The most common source of revenues was from the
ruler’s domain and tributes from conquered provinces.
v BUDGETING
– was exercised because of the need to allocate public revenues for specific
purposes.
v BORROWINGS – public
borrowings and debt management were unheard of since the ancient states did not
borrow money even in emergencies.
o
They
only solicited gifts or levied limited taxes
o
Ancient
states were relatively self-sufficient and public expenditures were usually
borne by the citizens and non-citizens without recourse to loans.
v AUDITING – state
audit was also an ancient and respected branch of state administration.
o
The
principle of accountability for those in charge of government expenditures of resources from
public funds is perhaps as old as organized government.
o
The
principle of independent state audit was accepted in ancient Greek times.
o
Ancient
public finance is limited to tax and expenditure aspects
- Medieval Public Finance
·
refined these concepts and introduced some
basic tools like ACCOUNTING and AUDITING.
The development of medieval
public finance closely followed the changes in the political structure of the
state during the Middle Ages
It weakened Monarchy
(Central Government)
Resulted to fragmentation of
public authority
Leads to the system of
feudalism and the rise of limited monarchy
The institutions of
political authority and their economic, social and cultural ramifications were
not only diverse but overlapping
Medieval conditions were greatly
varied in scope and nature among the different European states.- Feudal systems
·
Essentially the system of
economic relationship based upon land tenure, among the King, the lord, and the
vassals.
·
The King which theoretically
owned all lands has chartered his land to his nobles since he could not
administer them directly.
·
Due to rising expenditures
for defense against the invading barbarians, aggravated by his prodigal
spending, the King was forced to grant lands in return for immediate revenues
(aids or contributions).
·
The public domain was
divided into numerous feudal jurisdictions (fiefs) where the feudal lords ruled more or less independently.
·
The feudal lords became
vassals to the King (suzerain), accepting the fiefs in promise for aids and
soldiers.
·
Revenue raising and
expenditures occurred at two levels
v King
or the Central Government – mainly involved in national wars and administration
of his demesne.
v Feudal
Lords – provide basic services and in the process collected most of the taxes.
- THE RISE OF CENTRAL GOVERNMENT
·
The modernization of public
finance at the national level was developed
·
Strong central governments
included the expansion and the rationalization of national finances
·
Due to the growing cost of
government, they compelled the post-feudal states to raise more revenues
·
Broadened revenue system and
tax powers of central governments
o Poll
tax was introduced
o Magna
Carta of 1215 compelled the English King to grant civil and political liberties
including the right to be consulted on matters of revenue collection
o French
revolution in 1789 eliminated most of the existing taxes under the feudal
system.
o The
abolition of the feudal taxes was accompanied by a severe restriction of the
King’s expenditures power.
·
The rise of central
governments was also accompanied by circumstances which expanded public
borrowings and introduced new debt management practices.
- Capitalist systems
From 15th
century onwards, the feudal system was gradually shattered by the rising tide
of individualism. Prosperous merchants and craftsmen began to go against
communal restraints.
o
Factories were established
to provide goods for increasing populations
o
Technological advances
enabled man to explore other lands for raw materials and food.
o
Commercial trade increased
with the establishment of colonies
o
Increased wealth accompanied
by accelerated demands for goods and services expanded the domestic markets
o
The feudalistic system
together with its parochial and static socio-economic and political structures
slowly disintegrate
o
The nation-state arose,
forged by a strong central government
CLASSICAL ECONOMIST of
the ERA of
CAPITALISM
v ADAM SMITH (1723-1790)
Laid the philosophical basis
and justification for free enterprise or capitalism as the “ideal” political
and economic system.
Advocated the policy of
minimum governmental control on business activities (laissez-faire)
His theories on taxation in
his famous canons- equity, certainty, convenience and economy established a set
of principles which the state should observe in deriving its income more
efficiently, yet equitably.
He contended that borrowing
should only be resorted to in exceptional circumstances and should be repaid as
soon as possible since he was consequently against
deficit spending and advocated the concept
of balanced budget.
His doctrines advocated
limited expenditures - for defense, justice, and for the construction of a few
indispensable public works.
His contribution to
capitalism are not limited to public finance since his ideas were largely
shaped on the moral “rightness” of capitalism and the perceived functions of
government under such system.
v DAVID RICARDO (1772-1823)
Contributed in no small
measures to the refinement of modern fiscal administration concepts and
practices.
He is credited for his
theory of distribution of tax burden which he applied in his extensive studies
on the shifting and incidence of taxes.
His analysis of public
credit led to an expanded view of the utilization aspects of public borrowings.
v ADOLF WAGNER (1835-1917)
Ascribed to the state the
function of eliminating the inequalities of wealth through fiscal measures.
The use of fiscal policies
for distributive goals in modern times partly owes its origin to him.
JOHN STUART MILL (1806-1873)
Contended that governmental
action usually involved added expense which was usually defrayed out of
compulsory contributions levied upon the persons and properties of the state.
He observe that “the
business of life is better performed when those who have an immediate interest
in it are left to take their own course, uncontrolled either by the mandate of
law or the meddling of any public functionary.
THE CRISIS OF CAPITALISM: KEYNESIAN PUBLIC FINANCE
The economic depression of the
1930s changed the views of the great economist that labor could be fully
employed continuously and the resources of a country could be utilized most
efficiently if government activities were kept at a minimum and that government
was not supposed to interfere with the free enterprise system, except for minimal
regulatory functions.
·
They discovered that
economies under the capitalist or free enterprise system are subject to
cyclical fluctuations and to the ravages of the inflation, stagnation and
recession.
·
In 1936, modern capitalists
economics was changed by the appearance of a single book “The General Theory of
Employment, Interest, and Money” written by John Maynard Keynes.
·
On public finance issues, he
insisted that the government could and should influence the prices of goods and
services, the amount of consumption, the degree of employment and the
distribution of national income through taxation, borrowings and the purchase
and sale of commodities and labor.
·
He developed the concept of
fiscal policy as a tool for correcting imbalances in the economy.
·
Keynes’ ideas said to have
revolutionized public finance in the sense that he completely changed the
earlier theories of free enterprise economists. He introduced the concept of
government management of the economy within the context of the capitalist
system.
·
Critics of the capitalist
system, on the other hand say that he is a reactionary in the sense that his
theories “saved” capitalism from collapse.
- Socialist systems
v KARL MARX (1818-1883) MARXISM
Wrote his DAS KAPITAL which
laid the foundation for socialist public finance
Marx characterized his
approach as the “materialist conception of history,” maintaining that the key
to understanding human culture and history was productive capacity, which means
obtaining the means of subsistence by interaction with nature; in short LABOR.
“Labor
is a process in which both man and nature participate, and in which man of his
own accord starts, regulates, and controls the material relations between
himself and nature.”
The capital system, despite
its outward features, carries with it the momentum of class struggles. Such
class struggle has been present in societies formed by various “modes of
production” from the classical (slave) through feudalistic to the capitalist
society. In each society, a minority of people own and/or control the means of
production: land, money, labor, tools, etc. This minority composes the ruling
class.
The vast majority comprised
of the working class, own and control little or nothing, possessing only their
capacity to work and produce what is largely appropriated by the ruling class.
In his theory of SURPLUS VALUE, Marx explained how under
capitalist production, the capitalist exploits the worker by constantly trying
to extract the largest possible amount of “surplus” – that is, whatever value
the worker produces beyond what is required for his basic needs – and the
lowest possible cost. The capitalist extends the hours of labor or makes labor
more intensive or productive.
Conversely, the workers
consistently seek the highest possible wages, under the best possible working
conditions, for the least possible working hours.
These opposed interests and
the exploitative aspects of the relationship breed struggle between the working
and the capitalist classes.
The working class in the
course of its struggles confronts many forces and institutions that serve to
maintain and defend the prevailing system.
Marx believed it would
require a revolutionary act to overturn the existing system.
The main force of revolution
is the working class, the class which experiences the adverse effect of the
“contradictions”
Marx in his post capitalist
concept pointed out that, Communism could not be achieve immediately after the
revolution, for between capitalism and communist society lies the period of the
revolutionary transformation of one into the other.
The transition to communism
would be marked by two central processes: First,
the means of production would be owned by the society, and the products of
human labor would no longer be directly appropriated by a single possessing
class. Since the division of society into classes were largely determined by
ownership or non-ownership of the means of production, this would pave the way
for a classless society. Secondly.
the state would be gradually abolished, in the sense that there would no longer
be a political instrument for class domination and exploitation. Only on this HIGHER STAGE OF COMMUNIST SOCIETY
would society be able to INSCRIBE ON ITS BANNERS: FROM EACH ACCORDING TO HIS ABILITY, TO EACH
ACCORDING TO HIS NEEDS.
BASIC FEATURES OF SOCIETY PUBLIC FINANCE
1.
The Primacy of Central Planning – since
there is only one sector in socialism – namely the state sector – central planning is feasible and has been proven
successful.
2.
The Role of Taxation in Revenue-Raising –
taxation plays a very minor role in socialist public finance.
3.
Budget Deficits – budgets of socialist
countries do not have deficits but have surpluses of revenue over expenditures.
meron poh ba kaung mas maraming report kay adolf wagner?
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