The objective of the theory of public finance is to determine the optimal scales of government interventions or expenditures in different areas, and the optimum modes of financing these expenditures. The problems that governments handle are complex, and this makes the theory of public finance challenging. It is continuously searching for better, more acceptable and easier-to-implement solutions to problems.

This book, now in its second edition, examines the major theories of public finance, starting with fundamental principles, and explains how government decisions are taken on the basis of the guidelines based on these theories. This new edition includes updated data throughout, including newly revised tax slabs.

This book exposes students to various facets of public finance to help develop analytical frameworks to:


Address issues of efficient allocation of resources between private, public and mixed good.
Ensure equitable distribution of the tax burden among individuals.
Find ways of minimizing the inefficiency of the tax structure.
Study the statutory and economic incidence of different types of taxes.
Examine the implications of government borrowing.
Develop a rationale of distributing economic or fiscal responsibilities and tax powers among different tiers of government.


The book makes understanding the subject easier by developing simple mathematical models to derive major results in each of the above areas, and by explaining the economics behind the results in detail. The concepts are illustrated with the help of simple examples taken from the Indian economy. Moreover, the book assesses India's economic policies in the light of the theories discussed. Another distinguishing feature is that it contains a large number of review questions and numerical problems on every topic discussed to help students apply the techniques learnt, and thereby, develop a sound understanding of the subject.