What is public finance? Distinguish between direct and indirect taxes, and between revenue expenditure and capital expenditure, giving one example of each.

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**Public finance** is the branch of economics that studies the income (revenue), expenditure, and financial administration of the government.

**Direct vs indirect taxes:**
- A **direct tax** is one whose burden *cannot be shifted* to another person — the person legally liable to pay it also bears its burden. *Example:* income tax, corporate tax.
- An **indirect tax** is one whose burden *can be shifted* to the final consumer through higher prices — the seller pays it to the government but recovers it from the buyer. *Example:* the Goods and Services Tax (GST), customs duty.

**Revenue vs capital expenditure:**
- **Revenue expenditure** is recurring spending that neither creates an asset nor reduces a liability of the government. *Example:* payment of salaries and pensions, interest payments, subsidies.
- **Capital expenditure** is spending that either creates an asset or reduces a liability. *Example:* construction of a road, port or school, or repayment of a loan. …

Q.What is public finance? Distinguish between direct and indirect taxes, and between revenue expenditure and capital expenditure, giving one example of each.

Concept understanding — Public Finance

Q.What is public finance? Distinguish between direct and indirect taxes, and between revenue expenditure and capital expenditure, giving one example of each.

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