PA 241 INTRODUCTION TO PUBLIC

FISCAL ADMINISTRATION

DR. LUZVIMINDA G. MANANGAN – OZARRAGA

Professor
 PUBLIC FISCAL ADMINISTRATION
AND PUBLIC FINANCE
 To understand Public Fiscal Administration, one
must know what is Public Finance through its
traditional definition.

Public Finance is a branch of economics which deals

with the revenues and expenditures of the
governments and their impact in the economy.
 According to Adam Smith, the Father of Economics,
Public Finance is the investment into the nature and
principles of state expenditures and state revenue.

 Adam smith and the earliest economist were

justified in giving the definition because the function
of public authorities traditionally is to raise revenue
through taxation.
 However, in the emergence of the field of public
administration, much interest has been directed towards
the political administrative and management aspects of
formulating, implementing and evaluating fiscal policy,
thus the term Public Fiscal Administration emerge.

 Public Fiscal Administration refers to the formulation,

implementation and evaluation of policies and decisions
on taxation and revenue generation; implementation and
evaluation of policies and decision on matters of taxation;
resource allocation; budgeting and public expenditures;
Public borrowing and debt management; and lastly
accounting and auditing.
 But, if Public Fiscal Administration is considered as a
system, it includes the environment, structure, processes,
system, personalities (persons) involved in formulating,
implementing and evaluating fiscal policy.
 Fiscal Policy is the means by which the government
regulates its rate of resource sourcing (tax – the huge pie of
revenue) and the government level of expenditures
(spending). It is a sister policy to monetary policy (In
macroeconomics) through which a Central Bank influences
the nation’s monetary supply (Francisco, J., 2019).
 However, it is a common knowledge that there is
inequality in the system of public fiscal
administration of a Developing Country from a
Developed country. The difference are on their
politics and political institutions, adapted
economic development goals and objectives; kind
of economy that operates in the respective
country; the effect of their historical accounts,
colonization (Acemoglu, D., and Robinson, JA.,
2012).
 Public Fiscal Administration of a Developing Country –
Philippine Setting
 During the 1960’s most of the Fiscal policies were in –line with
the “balanced budget “ principle. However during Martial Law
many of these fiscal policies became an open policy declaration
of deficit financing and increased public borrowings especially on
the revenue – taxation policy and expenditure(spending policy).

 This was done to finance large-scale programs and projects.

Fiscal policy during the Marcos administration was primarily
focused on indirect tax collection and on government spending
on economic services and infrastructure development.
 The Cory Aquino Administration inherited a large
fiscal deficit from the previous administration, but
managed to reduced fiscal imbalance and improved tax
collection through the introduction of 1986 Tax Reform
Program and imposition of Value Added Tax (VAT).

The Ramos Administration experienced budget

surplus due to substantial gains from massive sale of
government assets and strong foreign investments.
 The Estrada Administration faced a large fiscal deficit
due to the decrease in tax efforts and the repayment
of the Ramos administration’s debt to contractors and
suppliers.

 The Arroyo administration, the Expanded Value

Added Tax law was enacted; national Debt –to – GDP
peaked; and also underspending on public
infrastructure and other capital expenditures was
observed.
 The Aquino III Administration economic growth fell to
3.6% from 7.63% in 2010. This weakness was overcome
in 2016 due to successful fiscal reforms which reduced
the fiscal deficit substantially. This is because of the
enactment of the “sin”, taxes against cigarettes and
alcohol products. Another is the influx of foreign
investors as they perceived improvement in governance
and sincere efforts to fight corruption (Lim, 2016).
During this administration, the country was among the
30 fastest-growing economies worldwide due to strong
domestic economic policies.
 THE ECONOMY – FISCAL POLICY
– Philippine Setting
 The Philippine economy is understood to be a so called
“Mixed Economy”. It is a combination of capitalist and
socialist economies. It is capitalist because it is a little
bit of market mechanism that operates freely in the
operation of the price system tempered by government
regulation. It is also socialist because it is characterized
by centralized state planning. Moreover, it is mixed
economy because it includes a variety of private
freedom, combined with centralized economic planning
and government regulation.
DEVELOPMENT OF PUBLIC FINANCE INSTITUTIONS
(refer to Vol. 1 of Phil. Public Fiscal adm., Leonor Briones, 1996)

The development of Public Finance Institutions

merely reflects the development of a state. It is a
common knowledge that Public finance has the
concept of raising and sourcing out revenues and
spending it – as termed revenue and expenditures –
for the function of the state.
EARLY PUBLIC FINANCE
 Ancient Finance: The Slave Societies
This is considered as the Traditional Public
finance. Financing public goals and activities is as
old as the organization of public authority, thus it
could be inferred that the beginnings of public
finance started from the creation of the state.
The state was created to protect and promote
the welfare of man.
 while Public Finance was to preserve the state
and promote the goals of society and particularly
financed the activities of government. The state
is composed of the government, the people, the
territory and sovereignty.
Expenditures or spending during this time is
proportional to the state’s vital functions.
Vital Function of the State – State’s Expenditures
A) Protection of the people, territory and sovereignty
from outward aggression.
B) Preservation of internal peace, order, security and
administration of justice.
C) the maintenance of a state religion. In slave
empires, as in Egypt, the rulers were considered
gods and goddesses. They were looked upon as the
human manifestations of deities and were
considered religious as well as temporal leaders.
 D. The maintenance of the King and his household.
It was the people’s obligation to provide the King with
revenues (divine obligations).
This function has its modern counterpart in the
general national government expenditure (the Filipino
people provide revenue for the government headed by the
President). The President was allotted a sum of peso for daily
expenses. Expenditure of the King was always deemed good
for the public welfare.
However, war expenditures got the lion’s share of the
ancient public finance.
Ancient Revenue

 Ancient revenues are generally crude and simple in form. It is

limited to: a) lootings;
b) tributes from conquered people;
c) war chest;
d) fines; and
e) direct taxes imposed on non-citizens of the states or
conquered people but with the consent of the people.
Ancient Budget and Borrowing
 Ancient budget or budgeting was merged with the King’s purse.
There was no distinction between the public and the King’s
private expenditures.
 Public Borrowing and debt Management were unheard of.
Ancient state did not borrow money from other states even in
emergencies.
It only solicited gifts or levied limited taxes. Ancient state was
relatively self-sufficient and public expenditures were usually
borne by the citizen and non-citizen within the state without
recourse to loans.
Ancient Accounting and Auditing

 The traditional way of accounting is just listing and checking the

spending.
State audit was also an ancient and respected branch of state
administration. The principle of accountability for those in charge of
government expenditures of resources from public funds is as old as
organized government. Ex. In ancient Greece states, control Yuan of
ancient China and the Roman Tribunus Plebis are bodies enforcing
public accountability thru audit powers.
Medieval Finance (395 A.D. – 1500)
The changes in the political structure of the state in the
middle ages brought forth MEDIEVAL FINANCE. This
change includes primarily the weakening of the monarchy
(central government). This resulted to fragmentation of
public authority resulting in the system called feudalism.
Thus public concerns and public expenditures changed in
terms of scope and composition just like accounting,
budgeting and auditing. Public borrowings became
institutionalized due to increasing expenditures of the
government. This middle age public finance development
brought forth a system of FEUDALISM.
 FEUDALISM
 Feudalism was a system of economics relationship base
upon land tenure among the King, the Lord and the vassals.
Feudal period be credited with the development of one major
source of public revenue. Most of the taxes were imposed on
land based activities and relationships.
 the King theoretically owned all of the lands within his
domain, but he could not administer them directly. Thus, he
find it convenient to charter the land to his nobles.
Moreover , due to the increasing expenditures for defense
and prodigal spending , the King was forced to grant lands in
return of immediate revenue.
 MEDIEVAL FINANCE (395 A.D. -1500)

Medieval finance followed the changes in the political

structure of the state in the middle ages. This change
includes primarily the weakening of the monarchy (now
called central Government).
These then resulted to fragmentation of public
authority resulting to a system called feudalism. Thus
public concerns (accounting, auditing and budgeting) and
public expenditures changed in terms of scope and
composition and required a tangible form.
 Public borrowing became institutionalized due to increasing
expenditures of the government

The Rise of CENTRAL GOVERNMENT (1300 -1500)

In the late part of medieval period the Central
Government started to Rise. It is noted that during
this medieval period there were two types of revenue
raising and spending such as: at the level of the King
or the Central Government and at the level of the
feudal Lords.
 Most of the traditional function and prerogatives of
the king were assumed by the feudal Lords who
provide basic services and in the process collected
most of the taxes.
Moreover the public function of the central
Government(ruled by king) were usually confined to
national concerns: wars, internal peace and order,
religion, maintenance of the ruler and his household
and public works which increase the growing cost of
government, compelled the feudal state to raise more
revenue.
 The heightened concern of government for economy
and prudence in imposition of taxes and public
expenditures, led to the fight for control over public
purse between the monarchy on one side and the
representative bodies (comprised of feudal Lords) and
the people, thus led to the return of national revenue
powers to Central Government. Moreover, the rising
tide of individualism shattered feudal system. The
feudalistic system together with its parochial and static
socio-economic and political structures slowly
disintegrated. Thus three economic school of thought
evolve: mercantilism, cameralism and physiocracy which
give rise to the beginning of capitalism.
First Assignment:
Define and describe the three school of thought
that give rise to Capitalism.
Do it for three pages body (content). Double
space with arial font size 12.
You must have a title page and a reference
page.
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