Effects of Musgrave views on the Theory of Public Finance:
According to Prof. Musgrave, Public Finance deals with the economics of the public sector, including not only it’s financing but its entire bearing on the level of and allocation of resources, as well as on the distribution of income among consumers. And the importance of the public sector lies in the fact that market mechanisms alone cannot perform all economic functions. It means all wants cannot be satisfied through the market. Hence public policy is needed to guide, correct and supplement it (i.e. market mechanism) in a certain respect. Therefore, Prof. Musgrave assigned three important responsibilities on public policy, i.e.,
(1) To secure adjustments in the allocation of resources.
(2) To secure adjustments in the distribution of income and wealth.
(3) To secure economic stabilization and growth.
It is, thus obvious that the role and scope of public finance are not confined to the provision of public services, i.e., the satisfaction of public wants or collective wants, but it has now been extended to achieve the proper state of distribution, economic stability, and growth.