Similarities between Public Finance and Private Finance:

The following are the points of similarities between public finance and private finance:

(a) Same Welfare Objective:

Both kinds of finances have broadly the same objective. Private finance is concerned with the maximization of individual welfare while public finance is concerned with the maximization of a community’s welfare from given resources.

(b) rationality

All kinds of finances are based on rationality. A rational individual tries to maximize his personal gain by allocating his given income.
Likewise, the government also behaves rationally in the sense that it seeks to maximize society’s welfare from the expenditures made in different activities. Any irrational behaviour— either on the part of the individual or the government—may spell disaster to indivi­duals, and to the society as a whole.

(c) Scarcity of Resources:

Both have limited resources at their disposal. Both public and private individuals are required to match their income and expenditures in such a way that both make the optimum use of resources which are scarce.

(d) Loans are Repayable:

Both private and public loans are required to be repaid. An individual borrows money from various sources to meet personal requirements. But that too cannot be unlimited. He has to repay his loans. Like individuals, government cannot live beyond its means. It can temporarily postpone repayment of loans, but it is obligatory to repay the loans.



Thus, public finance may be regarded as an extension of private finance. This, however, is not true.

Dissimilarities between Public Finance and Private Finance:

There are some basic differences between private and public finance. Some of the important differences are:

(a) Objectives are Indeed Different:

The objectives are different by the very nature of public and private finance. The government has to set an objective standard of utility from given public expenditure while an individual fixes a subjective standard of utility from his given personal expenditure.
Private individuals or firms are mainly concerned with private consumption or profits, while the government aims at promoting the society’s welfare. Again, an individual or a firm is mainly concerned with present profits and prospects, not with that of the distant future. But the government has to serve society generation after generation.


In other words, government is not guided by the profit motive; it is mainly concerned with the general interest of the society. An individual is myopic in the long run, and that is why he attaches more importance to the present period than to the future. On the other hand, since government regards itself as a trustee for the future, it makes provisions not only for present period but also for posterity.

(b) Public Expenditure Determines Public Revenue:

An individual adjusts his expenditure to income while the state adjusts income to expenditure.
An individual usually prepares his family budget in accordance with the income that he expects to receive. Income is, thus, the crucial determinant of individual budget. On the other hand, the government usually prepares its budget of expenditures and then searches wherefrom it can raise the required funds to meet the expenditures.