Economic Analysis in local government

Scholars have noted the close relationship that exists between public finance and other sciences, especially Economics. Bastable (2003) asserts that, whereas the problems of public finance need to be treated in a separate form, there is such a close relationship between finance and Economics that the two cannot be treated separately. One of the many connections that Bastable (2003) notes between the two disciplines is the fact that public finance is part of society consumption that the government tries to regulate.

To understand public finance then, the theory of consumption has to be understood. Economic theories are found useful in the study of public finance in a number of areas. The operation of monopolies in Economic theories is found useful in studying the management of state property because in this area the government is a virtual monopoly. Economic theories are also used to study taxation. More specifically, economic principles are used to test the merits of a taxation system.

This, according to Bastable (2003) is critical because it helps us understand the economic effects of taxation in which case matters relating to a tax cease to be simple ethical issues. Only when the effects of taxation have been analyzed by use of economic theories are we able to make a decision on whether a tax that has been imposed is just or not. Still on taxation, the incidence of a particular tax is best understood by reference to economic theories on distribution of wealth (Bastable, 2003).

Economic theories are also used to analyze public finance especially the effects that taxation has on wealth accumulation. This is understood by reference to economic theories on conditions of effective production. Moreover, economic theories on credit are used to study public finance in the area of public loans. In many areas, economic theories are so intricately connected to the study of public finance that Bastable (2003) considers knowledge of economics critical to the study of public finance.