Dalton’s Conditions of Maximum Social Advantage
According to Dalton,”Public expenditure in every direction shall be carries out just so far that the advantage to the community is just counter-balanced by the disadvantage of a corresponding small increase in taxation.”
The doctrine of maximum social benefit can be explained with the help of following figure:
MSS curve is showing marginal social sacrifice.It slopes upwards from left to right side.This means that as a result of every increase in government expenditure,an increase in marginal social sacrifice takes place.In this diagram,point P is showing the position of maximum social advantage.At this point,government expenditure becomes equal to the government revenue as shown by ON.Further,MSS(Marginal Social Sacrifice) is equal to MSB(Marginal Social Benefit),as shown by OM.Point P shows the positions of equilibrium.
If the government imposes the taxes which exceed ON,as shown by ON1 marginal social sacrifice will be greater than marginal social benefit(MSS>MSB).It will result into less social advantage.Similarly,if the government keeps its expenditure less than ON1 as shown by ON2 marginal social benefit will be greater than marginal social sacrifice,yet the aggregate welfare of the society will be less.
Significance of Principle of Maximum Social Advantage
The practical significance of this doctrine depends upon how social welfare is to be measured.Only after determining it,we can make an estimate about the system giving maximum social benefit.Dalton has given following standards of measurement in this regard:
Increase in production
Maximum social benefit depends upon what effect public finance is making on the country’s production.In order to maximise the social benefit,such changes in the revenue and expenditure of the government should be made which could stimulate production and could increase employment and exports.According to Dalton,increase in production depends on three factors:
- Such improvements are made in the production technique as result of which production per workers goes up
- Such improvements should be made in the production organisation by which the minimum wastage of economic resources takes place.
- The nature of production should be improved so as to yield maximum benefit to the society.
Equitable Distribution of Wealth
Maximum social benefit also depends upon the fact that there is a proper distribution of income in society.For it, 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 when 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 maximises production and social welfare.
Future Consideration
It is the bounden duty of the government to safeguard the interests of the future generation also while utilizing the available natural resources in the present.
Limitations
- Difficulty of Measuring Sacrifice and Benefits
Maximum advantage is determined by marginal social sacrifice and marginal social benefit or satisfaction.But measurement of both of them is very difficult.Since society is a group of number of people,so it is not easy to measure the sacrifice and satisfaction of every one. Besides it,utility or satisfaction is subjective.It is not possible to measure it.
2. Future Advantage
The expenditure made on the development projects yields several benefits in future,but the public is burdened with taxes in the present.Therefore,it becomes difficult to make an estimated of the maximum social advantage on the basis of future advantages and present sacrifices.
3. Methodological inconsistency
To some economists,the disutility created by taxation to the taxpayer is a micro matter concerned with individuals,while the utility of public expenditure available to the society as a whole is a macro problem. Therefore,serious mythological inconsistency is involved in balancing microeconomics matter with macroeconomic matter.
4. Unrealistic assumptions
It is unrealistic to assume that government expenditure is always beneficial and that every tax is a burden to society. For example, taxes on cigarettes or alcohol can provide benefit to society, whereas a tax on education of essential commodities may harm general interest of society, similarly, expenditure on social overheads like health care will give rise to social benefit whereas unnecessary increase in expenditure on defence may divert resource from productive activities causing loss of welfare to society.
5. Misuse of government funds
The principle of Maximum social advantage is based on the assumption that the government funds are utilized in the most effective manner to generate marginal social benefit. However, quite often a large share of government funds is misused for unproductive purposes which do not provide any social benefit. Secondly, there is rampant corruption in government departments. The funds meant for public expenditure are often misappropriated, and therefore, the funds generated by way of taxation fails to generate social benefit.
6. Large budget size
The financial operations of the government involve collection of large sums of money from taxation and other sources and the disbursement of large amounts by way of public expenditure. The effects of small additional amounts of these on the community are difficult to measure. Therefore, in practice, the public authorities are not in a position to estimate the marginal benefits and the marginal sacrifices. It is almost impossible to determine the particular size of budget that will maximise the welfare of the community.
7. Neglect non-tax revenue
The principle says that the entire public expenditure is financed by taxation. But, in practice, a significant portion of public expenditure is also financed by other sources like public borrowing, profits from public sector enterprises, imposition of fees, penalties etc. Dalton fails to take into account all such other sources.
8. Difficult to assess the capacity of the people
It is very difficult to measure the capacity of the people of a state which they can afford to pay to the government. What people of a country afford,depends upon:
- The manner in which the money is raised
- The manner in which the money is spent.
