The Principle of Maximum Social Advantage states that public finance leads to economic welfare when public expenditure and taxation are carried out up to the point where the marginal utility of expenditure equals the marginal disutility of taxation. It assumes a balanced budget with taxes as the only source of public revenue. As more taxes are levied and expenditures incurred, the marginal social benefit of spending decreases and the marginal social sacrifice of taxes increases. Maximum social advantage is achieved at the point where these marginal utility and disutility curves intersect.
The Principle of Maximum Social Advantage states that public finance leads to economic welfare when public expenditure and taxation are carried out up to the point where the marginal utility of expenditure equals the marginal disutility of taxation. It assumes a balanced budget with taxes as the only source of public revenue. As more taxes are levied and expenditures incurred, the marginal social benefit of spending decreases and the marginal social sacrifice of taxes increases. Maximum social advantage is achieved at the point where these marginal utility and disutility curves intersect.
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The Principle of Maximum Social Advantage states that public finance leads to economic welfare when public expenditure and taxation are carried out up to the point where the marginal utility of expenditure equals the marginal disutility of taxation. It assumes a balanced budget with taxes as the only source of public revenue. As more taxes are levied and expenditures incurred, the marginal social benefit of spending decreases and the marginal social sacrifice of taxes increases. Maximum social advantage is achieved at the point where these marginal utility and disutility curves intersect.
The Principle of Maximum Social Advantage states that public finance leads to economic welfare when public expenditure and taxation are carried out up to the point where the marginal utility of expenditure equals the marginal disutility of taxation. It assumes a balanced budget with taxes as the only source of public revenue. As more taxes are levied and expenditures incurred, the marginal social benefit of spending decreases and the marginal social sacrifice of taxes increases. Maximum social advantage is achieved at the point where these marginal utility and disutility curves intersect.
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Principle of
maximum social advantage Meaning The 'Principle of Maximum Social Advantage' was introduced by British economist Hugh Dalton. The Principle of Maximum Social Advantage states that public finance leads to economic welfare when pubic expenditure & taxation are carried out up to that point where the benefits derived from the MU (Marginal Utility) of expenditure is equal to the Marginal Disutility or the sacrifice imposed by taxation. Assumptions The public revenue consists of only taxes ( and not of gifts, loans, fees etc.) and the state has no surplus or deficit budgets. (balanced budget) The law of diminishing marginal social advantage applies to the public expenditure The taxes are subject to increasing marginal social disutility Dalton conditions of maximum social advantage Public expenditure in every direction should be carried out just so far that the advantage to the community is just counter balanced by the disadvantage of a corresponding small increase in taxations Marginal Social Sacrifice (MSS) ↓
Marginal Social Sacrifice (MSS) refers to that
amount of social sacrifice undergone by public due to the imposition of an additional unit of tax. Every unit of tax imposed by the government taxes result in loss of utility. that the additional burden (marginal sacrifice) resulting from additional units of taxation goes on increasing i.e. the total social sacrifice increases at an increasing rate. Marginal Social Benefit (MSB) ↓ While imposition of tax puts burden on the people, public expenditure confers benefits. The benefit conferred on the society, by an additional unit of public expenditure is known as Marginal Social Benefit (MSB). Just as the marginal utility from a commodity to a consumer declines as more and more units of the commodity are made available to him, the social benefit from each additional unit of public expenditure declines as more and more units of public expenditure are spent. The Point of Maximum Social Advantage ↓ Social advantage is maximized at the point where marginal social sacrifice cuts the marginal social benefits curve. This is at the point P. At this point, the marginal disutility or social sacrifice is equal to the marginal utility or social benefit. Beyond this point, the marginal disutility or social sacrifice will be higher, and the marginal utility or social benefit will be lower. Significance INCREASE IN PRODUCTION : in order to maximize the social benefit , there should be such changes in the revenue and expenditure of the government as could stimulate production and could increase employment and exports 1. such improvements are made in the production technique as a result of which production per worker goes up 2.such improvement should be made by the means of which minimum wastage of resources takes place Equitable distribution of wealth : for this purpose the taxation process should be changed in such a way that more and more wealth is collected from the rich and the same is spent on providing more and more facilities to the poor. Political stability : social welfare and production efficiency are promoted where there is peace and order within and the country is protected against any external aggression. Economic stability : by pursuing an appropriate fiscal policy , government should avoid economic fluctuations which is a pre condition to achieve social welfare Full employment : Every government aims at achieving the goal of full employment through its fiscal policy. Full employment maximizes production and social welfare. Future consideration : It is duty of the government to safeguard the interests of the future generation also while utilizing the available natural resources in the present. Limitations Measurement of both sacrifice and benefit is difficult It is difficult to make an estimate of maximum social advantage on the basis of future advantages and present sacrifices. It is difficult to estimate how much effect each tax individually has on public Collecting revenue through taxes creates disutility It is incorrect to assume that each tax involves burden on the people.
