Difference between Public Finance and Private Finance

The specialised study of how an individual or a company manages its funds is known as Finance. It refers to the money required for carrying out business activities. It involves all activities right from the estimation of funds to their acquisition, utilisation, and disposal. Finance is the lifeblood of any business. It is mainly of two types: Public Finance and Private Finance where public finance is managed by the government and private finances are managed by the private sector.

What is Public Finance?

Public Finance refers to the study of the government’s revenue and expenditure activities. The government has various resources to generate revenue and is used to benefit the general public. It mainly has three functions: making efficient use of resources, stabilising the economy, and distributing the revenue generated among citizens.

Public finance consists of various components like collection of tax, budget, and debt on the nation. The major source of government income is tax collection, which is used mainly for purposes like building roads, water facilities, generating electricity, etc. The government often creates a deficit budget for expenditures on different projects. When expenditure exceeds the revenue, this budget is called a deficit budget. The government borrows money to increase tax collection and adds to the national debt. The development of an entire nation is dependent on the successful management of public finances.

What is Private Finance?

Private Finance is the study of the revenue and expenditure activities of an individual or a company. Under private finance, individuals or private entities have fewer resources to generate income, and this income is used to create profit and meet personal desires.

Private finance can be categorised into two types: Personal Finance and Business Finance. Individuals, households, companies, or business firms have access to personal finance. It comprises activities like banking, savings, investment,  loans, etc. Individuals make short-term investments, but before making any investments they carefully evaluate their income. The management of a company’s financial activities is referred to as business finance. Here the focus is on how to obtain capital and then utilise it to help the firm expand. It helps to enhance the capital of the company.

Difference Between Public Finance and Private Finance

Basis	Public Finance	Private Finance
Meaning	Public finance is concerned with the expenditure and revenue of the government.	Private Finance is considered with the expenditure and revenue of individuals and business firms.
Nature of the Budget	Government usually makes a deficit budget, i.e., where expenditure exceeds revenue.	Private entities usually make a surplus budget, i.e., where revenue exceeds expenditure.
Objective	The objective of public finance is to encourage social welfare and provide benefits to the general public	The objective of private finance is to only enhance the profit of the entities.
Elasticity of Finance	Public finance is more elastic as it has a scope of drastic changes.	Private finance is less elastic than public finance as there is not much scope for changes in it.
Financial Transaction	The financial transactions in this case are open and known to everyone.	The financial transactions in this case are kept a secret.
Sources of Revenue	The government has more sources for creating money, such as printing money and establishing laws to raise its revenue	Private entities have limited sources to generate revenue.
Determination of Expenditure	The government determines the amount of expenditure first and then searches for ways to generate income.	A private individual first evaluates his income before deciding how much money is needed to be spent.
Right to Print Currency	The government has complete authority over the currency. They can create, distribute and monitor the currency.	Private entities are not allowed to create currency.
Effect on Economy	Public Finance has a tremendous impact on the overall economic system.	Private Finance has little or negligible impact on the overall economic system.
Differences in Credit Status	In public finance, the government’s capacity for borrowing or public credit is unlimited.	In private finance, an individual’s credibility and borrowing capability are restricted.
Time Horizon	The time horizon of public finance is one year.	There is no fixed time horizon for private finance.
Example	Public Debt, Taxation, Public Spending, Monetary Policy, etc.	Mortgage and other loans, Insurance, Stock Market Investment, Personal Savings and Investments, etc.