Apart from Economics, public finance is related to a host of other subjects including History and Political Science and analysis of public finance is aided by reference to those other disciplines (Bastable, 2003). For this reason, public finance can only be comprehensively analyzed by use of both inductive and deductive methods. While history assists in studying the evolution of public finance, mathematical and statistical analysis of data makes the study worthwhile and removes elements of guesswork from the exercise (Bastable, 2003).
Modern study of public finance is aided in a great way by abundance of data which is used for statistical analysis. There is data that is readily available on the distribution of wealth between the classes and its distribution across regions. Bastable (2003) notes the debate that has raged on which method, between inductive and deductive ones, is to be considered the correct one for the study of public finance and concludes that the two methods should be considered complementary. Induction helps in providing the raw data.
Without induction, we would not have data for study. Yet today, massive data is available from a variety of sources. Data on population and wealth distribution will be obtained from census agencies while statistical departments will provide data on many subjects. This data, however critical it is, serves no useful purpose unless it is subjected to scientific analysis. One way in which empirical data could be used for deductive analysis is “a simple juxtaposition of two financial systems … to throw light on the conditions governing each” (Bastable, 2003, p12).
Practical use of deduction in studying public finance is seen in the study of the incidence of taxes. Empirical data, without the use of statistical reasoning cannot shed on the effects that imposition of a tax has. Other areas in which deduction is used in public finance is in ascertaining the effects of public expenditure. Mathematical analysis is the only way by which the impacts of public expenditure can be ascertained. Moreover, deduction is used to calculate the “effects of public indebtedness” (Bastable, 2003 p13).
That deduction and induction play complementary roles in the study of public finance is shown by the fact that some data can only be analyzed by one method and never by the other. For this reason, Bastable (2003) suggests that Mathematical enquiry be applied when conditions can be simplified. This implies the existence of predictable conditions. While some areas of public finance exhibit consistencies that allow for Mathematical analysis, most areas are too complicated as one factor will be dependent on many other factors thus making mere deduction impossible.