Public Finance

State functions, debt sustainability, taxation, and fiscal federalism.

Frameworks in this section concern the economic role of the state — what it should do, how it should pay for it, and how to know when borrowing is too much.

If you are new here, start with The Three Functions of the State (allocation, distribution, stabilisation — why governments do what they do) and The Domar Rule (the surprisingly simple arithmetic that tells you whether debt is sustainable). Public finance sits at the intersection of economics and politics; most real-world fiscal debates make more sense once you have these two anchors in place.

A Taxing Month Ahead

What’s a budget without new taxes, fees, cesses, or surcharges? As the budget date nears, let’s understand the categorical differences between these four seemingly interchangeable terms.

A useful thumb rule:

the cost to society for every rupee of public spending in India is around ₹3. Therefore, the government should only spend an additional one rupee when the gains to society from that action exceed ₹3.

Algorithm for Fiscal Federalism

A systematic approach to splitting revenue and responsibility between centre and states.

Marginal Cost of Public Finance

Every additional rupee government raises has an economic cost beyond the rupee itself — and that cost matters.

The Domar Rule for Public Debt Sustainability

Public debt is sustainable as long as the economy grows faster than the rate of interest on the debt.

Three Functions of the State

Every government does three economic jobs at once — provide what markets won’t, redistribute, and stabilise the macroeconomy. Confusion between them is a leading cause of bad policy.

Wicksellian Disconnection

The mismatch between who pays for a service and who consumes it, and the political pathologies it creates.